Petition — Blue Diamond Coal Co. v. Boggs

Supreme Court brief1979

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JUN 1 1979

IN THE \

[_KICHAEL RODAK, JR., CLERK

SUPREME COURT OF THE UNITED STATES

October Term, ne Q | 4 9 g

SAE

BLUE DIAMOND COAL COMPANY, - Petitioner,

versus

JENNIFER BOGGS, CAROL COMBS, GERALDINE

COOTS, VERA GALLOWAY, LIBBY GIBBS,

MADONNA GRIFFITH, DIANE McKNIGHT,

GERALDINE McKNIGHT, PHYLLIS PEAVEY,

VICKIE SCOTT, CELINDA SPARKMAN,

ETHEL STURGILL, DEBBIE TURNER, REDA

TURNER, and CHARLOTTE WIDNER, Admin-

istratrices of their Decedents and Individually,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

BERT T. COMBS

CHARLES R. SIMONS

ROBERT I. CUSICK, JR.

TARRANT, COMBS & BULLITT

2600 Citizens Plaza

Louisville, Kentucky 40202

FOSTER D. ARNETT

ARNETT, DRAPER & HAGOOD

1212 United American Bank Building

Knoxville, Tennessee 37902

L. R. COULLING, JR.

HUDGINS, COULLING, BREWSTER & MORHOUS

Box 529, 323 Law & Commerce Building

Bluefield, West Virginia 24701 rf

(List of Attorneys continued on inside cover)

WESTERFIELD-BONTE CO., 619 W. KENTUCKY—P.O. BOX 3251, LOUISVILLE, KY.

MAXWELL P. BARRET

CRAFT, BARRET, HAYNES & WARD

Combs Building

Hazard, Kentucky 41701

HENRY STRATTON

MARRS ALLEN MAY

STRATTON, MAY & HAYS

P. O. Box 851

Pikeville, Kentucky 41501

Counsel for Petitioner

PAGE

cn abscnsesavece 2

SOUL Wie sade h eas envevcasoes 2

ee ic. em be aves ave 2- 3

Statutes, Rules and Regulations Involved ........... 3-7

SE eae pass ccc ee eeseesecces 8-16

Reasons for Granting the Writ .................... 16-49

I. In Ignoring Kentucky’s Certification Procedure

and Refusing to Certify to the Supreme Court

of Kentucky the Controlling Public Policy Is-

sues Involved as to the Proper Interpretation of

Kentucky’s Workmen’s Compensation Act, the

Court of Appeals Adopted an Approach Patently

Contrary to the Teachings of This Court ...... 16-35

Il. The Court of Appeals’ Disregard of Kentucky’s

Certification Procedure Directly Conflicts With

the Established Practice Adopted by Other Cir-

euits Under Similar Circumstances ...........35-41

Ill. The Court of Appeals Erroneously Determined

an Important Question of State Law Under Ken-

tucky’s Workmen’s Compensation Act in Viola-

tion of the Duty Imposed Upon It by Erie R.

Co. v. Tompkins, 304 U.S. 64 (1938) .......... 41-49

ESS 49

Ne BUDO a ss hvac ewscnsecncactes la-3la

Opinion of the United States Court of Appeals.. la-17a

Judgment of the United States Court of Appeals. 18a

Order of the United States Court of Appeals

Denying Petition for Rehearing............ 19a

Memorandum Opinion of United States District

Court for the Eastern District of Kentucky. .20a—-29a

Order of the United States District Court for the

Eastern District of Kentucky............... 30a-31a

TABLE OF AUTHORITIES

Cases:

Adams v. Ford Motor Co., 573 F. 2d 1182 (10th Cir.

TED kn Sidnia fs tha a wb ae ee seed a se

Adamson vy. Okland Construction Co., 508 P. 2d 805

CR EE oe sep Nas OAs Ceara ue be cae

Aetna Casualty & Surety Co. vy. Hertz Corp., 573 F.

See Oe CU Oy. BOND <6 ke nd 05d Slew snowed vbie's

Aldrich v. Aldrich, 375 U. S. 75, 249 (1963), on cer-

tification, 163 So. 2d 276 (Fla. 1964), on receipt

of answers following certification, 378 U. S. 540

CRD. 205 saa eae dk Ved eeeaIh a ee cas

Allen v. Estate of Carman, 446 F. 2d 1276 (5th Cir.

1971), on certification, 281 So. 2d 317 (Fla. 1973),

on receipt of answers following certification, 486

Bae Ge Ce GP: DENS ih vc duke ook cease.

American Timber and Trading Co. v. First National

Bank of Oregon, 511 F. 2d 980 (9th Cir. 1973),

cert. dented, 421 U. S. 921 (1975) .............

Arnold v. Shell Oil Co., 419 F. 2d 48 (5th Cir. 1969)

Bellotte v. Zayre Corp., 531 F. 2d 1100 (1st Cir.

1976), on certification, 352 A. 2d 723 (N.H. 1976)

Bellotti v. Baird, 428 U. S. 182 (1976) ............

Blanchard v. Engine & Gas Compressor Services,

Inc., 575 F. 2d 1140 (5th Cir. 1978), certification

order, 590 F.. 2d 594 (Sth Cir. 1979) ...........

Brennan v. University of Kansas, 451 F. 2d 1287

CPR ee MURS Sik oa.3 saatieW alae shea Ree R cae

Bryant v. Old Republic Insurance Co., 431 F. 2d 1385

CO Te nn o's ov aast Caen aS enerere

Castlewood International Corp. v. Simon, 564 F. 2d

Bi Be St ROG mee ee ry eee

Cincinnati Insurance Co. v. City of Talladega, Ala-

bama, 529 F. 2d 718 (5th Cir. 1976), on certifica-

tion, 342 So. 2d 331 (Ala. 1977), on recetpt of

answers following certification, 552 F. 2d 128

SOE SG SUES, oS 5k 5nd eae bls I eean eee

PAGE

ili

Cases (Cont'd):

Clay v. Sun Insurance Office, 363 U.S. 207 (1960),

on certification, 133 So. 2d 735 (Fla. 1961) ..... 29, 30

Coco v. Winston Industries, 330 So. 2d 649 (La.

App. 1975), judgment set aside on other grounds,

Gn ee, Oh AO UTED on oa bine nek cddee sv 20, 44

Cole v. Chevron Chemical Company—Oronite Divi-

sion, 477 F. 2d 3861 (Sth Cir. 1973), cert. denied,

PAGE

See rts eC UPTE. 6.60 dab oe clas was oases 43

Commissioner v. Estate of Bosch, 387 U. S. 456

SRR ia Okabe s SERRE Eke Cade eeus vob 24

D’ Ambra v. United States, 518 F. 2d 275 (1st Cir.

1975), on certification, 338 A. 2d 524 (R.I. 1975) 39

Dresner v. City of Tallahassee, 375 U.S. 136 (1963),

on certification, 164 So. 2d 208 (Fla. 1964) ..... 30

Eagle Star Insurance Co. v. Deal, 474 F. 2d 1216

Cy Ce ON 5 SNK bs eek nee dv enone eine ks 47

Elkhorn-Hazard Coal Land Corp. v. Taylor, 539

8 fy) Be | ea eer eer 21-22, 46

Elkins v. Moreno, 435 U.S. 647 (1978) ............ 32

Erie R. Co. v. Tompkins, 304 U.S. 64 (1938) ....2, 24, 41

Fidelity Union Trust Co. v. Field, 311 U. S. 169

gee RRR ris eo ky Aes Coan rapa Sas ER at a eRe 24

Filley v. Kickoff Publishing Co., 454 F. 2d 1288 (6th

CI OE at Ay Rig We earch Nie kch ale vias A OTs S 28

Gabhart v. Gabhart, 545 F. 2d 877 (7th Cir. 1977),

on certification, 370 N. BE. 2d 345 (Ind. 1977) ...39, 40

Green v. American Tobacco Co., 304 F. 2d 70 (5th

Cir. 1962), on certification, 154 So. 2d 169 (Fla.

1963), on receipt of answers following certifica-

tion, 325 F. 2d 673 (Sth Cir. 1963), cert. denied,

377 U. S. 943 (1964), on appeal after retrial,

391 F. 2d 97 (5th Cir. 1968), rev’d on rehearing

en banc, 409 F. 2d 1166 (5th Cir. 1969) ........ 36

Helvering v. Stuart, 317 U. S. 154 (1942), as modi-

ad, SEF TAs We CEE) csi ec ess 41

Hiram Ricker & Sons v. Students International

Meditation Society, 501 F. 2d 550 (1st Cir. 1974),

on certification, 342 A. 2d 262 (Me, 1975) ...... 39

Cases (Cont'd): ‘ sae

Hopkins v. Lockheed Aircraft Corp., 358 F. 2d 347

(5th Cir. 1966), on certification, 201 So. 2d 743

(Fla. 1967), on receipt of answers following

certification, 394 F. 2d 656 (Sth Cir. 1968) ..... 37

In Re Glassman, 262 F. 2d 857 (6th Cir. 1958) ..... 28

In Re McClintock, 558 F. 2d 732 (5th Cir. 1977),

on certification, 241 S. E. 2d 831 (Ga. 1978),

on receipt of answers following certification, 571

FP. 92 S27 (Sth, Cin. SIRO) oo cinccka css sestscks 37

Jackson v. Southern Pacific Co., 285 F. Supp. 388

(D.C. Mey. WGR) ... ici cidcdiaekdeeeiecuee 43

Kaiser Steel Corp. v. W. S. Ranch Co., 391 U. 8. 593

(1968), rev’g, 388 F. 2d 257 (10th Cir. 1967) .... 33

Kaiser Steel Corp. v. W. S. Ranch Co., 467 P. 2d

ke 8 ey 33

King v. Shelby Rural Electric Cooperative Corp.,

502 S. W. 2d 659 (Ky. 2973), cert. denied, 417

U. @& SOB (09BO) 2c vccivccaceit eae 25, 48-49

Krutsinger v. Mead Foods, Inc., 546 F. 2d 328 (10th

Cir. 1976), on certification, 560 P. 2d 195 (Okla.

WET) . vw ccsccccseccesndS ele eee 40

Lehman Brothers v. Schein, 416 U. S. 386 (1974),

on certification, 313 So. 2d 739 (Fla. 1975), on

receipt of answers following certification, 519 F.

9d 453 Clad Ole. BPSD scscnksacivcwiees 31

Liles v. Riblet Products of Louisiana, Inc., 363 F.

Supp. 358 (W.D. La. 1973), aff'd, 509 F. 2d 804

(Sth Che. BETG) 0 cncncckns cuncistaus eeeneeaee 44

Louisiana Power & Light Co. v. City of Thibodaua,

960. U. B& SB (CHRD)... co cunceks dawns 32-33

MacGregor v. State Mutual Co., 315 U.S. 280 (1942) 41

Mahan v. Litton, 321 S. W. 2d 248 (Ky. 1959) . .25, 44-45,

46, 49

Martin v. University of Louisville, 541 F. 2d 1171

(Gth Cir. 1996) ....0dcescannseapeseeeeee 28

Martinez v. Rodriquez, 394 F. 2d 156 (5th Cir.

1968), on certification, 215 So. 2d 305 (Fla. 1968),

on receipt of answers following certification , 410

FB. 20 729 (Sth Cir, TRGB) oe ccs citicuuaee deen 37

Cases (Cont'd):

Matters of Cedars of Lebanon Hospital Corp., Inc.,

546 F. 2d 63 (5th Cir. 1977), on ceriification, 355

So. 2d 1202 (Fla. 1978), on receipt of answers

following certification, 574 F. 2d 1323 (5th Cir.

ea cite tid wei diet ah bh Shak Ripa daw ans

Nardone v. Reynolds, 508 F. 2d 660 (5th Cir. 1975),

on certification, 333 So. 2d 25 (Fla. 1976), on

receipt of answers following certification, 538

Br ee Re ROE Ry BID oo ving tbh ccues vcneu

N.L.R.B. v. Gass, 377 F. 2d 438 (1st Cir. 1967) .....

N.L.R.B. v. Patterson Menhaden Corp., 389 F. 2d

Pn CR RNG SUE (o dwdaadakkns ta nOadausae ee

Poyner v. Lear Stegler, Inc., 542 F. 2d 955 (6th Cir.

1976), cert. denied, 430 U. S. 969 (1977) .......

Reetz v. Bozamch, 397 U.S. 82 (1970) ............

Renfroe v. Higgins Rack Coating € Manufacturing

Co., 169 N. W. 2d 326 (Mich. App. 1969) .......

Rudd-Melikian v. Merritt, 282 F. 2d 924 (6th Cir.

| BERR eh eee Ha ny Cerne wey a

Rutherford v. Modern Transportation Co., 320 A.

2d 522 (N.J. Super. L. Div. 1974) ..............

Seltzer v. Isaacson, 371 A. 2d 304 (N.J. Sup. Ct.

RR ical ewisnunaes ceanesydlba wees sae ewe

Sia Companies of California v. Joint Highway Dis-

PGCE, BEL Ws Te. SO LEMO beck sacewnsacvcsane

Spector Motor Co. v. McLaughlin, 323 U. S. 101

EE Se ce iN Tee dh waa dees «haben tases

Stoner v. New York Life Insurance Co., 311 U. 8.

UR ee ON ik ba 2 aa wehiag sake baalD

Stubbs v. Green Brothers Gravel Co., 206 So. 2d 323

caer e ad 6 che Nt G46.0s 0 wid ah

Texaco, Inc. v. Pruitt, 396 F. 2d 237 (10th Cir.

ha GAN eres als Wand whee ced ag tie dint he

Thompson v. Consolidated Gas Co., 300 U. S. 55

> 4 DEE SURR ae Pere ver Sener Tee err

Trail Builders Supply Co. v. Reagan, 409 F. 2d 1059

(5th Cir. 1969), certification order, 410 F. 2d 763

PAGE

Cases (Cont’d): sata

(5th Cir. 1969), on certification, 235 So. 2d 482

(Fla. 1970), on receipt of answers following cer-

tification, 430 F. 2d 828 (5th Cir. 1970) ........ 38

Tyler v. Insurance Company of North America,

Inc., 520 F. 2d 341 (Sth Cir. 1975), on certifica-

tion, 331 So. 2d 641 (Ala. 1976), on receipt of

answers following certification, 539 F. 2d 1072

Ce Cy SOME Wi cv nied we tects FRRE Ret ae Ce baten 37

Union Light, Heat & Power Co. vy. U. S. District

Court, 588 F. 2d 543 (€th Cir. 1978) ........... 28-29

United Engineers and Constructors, Inc. v. Bran-

ham, 550 S. W. 2d 540 (Ky. 1977) .......... 25, 46-47

United States v. 16.33 Acres of Land in County of

Dade, Florida, 537 F. 2d 182 (5th Cir. 1976),

on certification, 342 So. 2d 476 (Fla. 1977), on re-

ceipt of answers following certification, 551 F. 2d

Ce RR Sees EN 5 5rs s Sees a eek ae bel 37

United States v. Davison Fuel and Dock Co., 371

Bs ee re Cee Ca SED ok ain hb a Vawtc chase aces 48

United States v. Durham Lumber Co., 363 U.S. 522

SEEN a cy Reed ak ok Dua een uAaeee Canad 41

Upper Elkhorn Coal Co. v. Thornberry, 564 S. W.

BO Ee AEF, ec NET Ds hoes dhe sas eawseeens 23, 46

Walko Corp. v. Burger Chef Systems, Inc., 554 F.

2d 1165 (D.C. Cir. 1977), on certification, 378

A. 2d 1100 (Md. 1977), on receipt of answers

following certification, 568 F. 2d 1389 (D.C.

6 NL. 2 Rete Ae ort pre Geen shar SEGRE ey ts 39

Wansor v. George Hantscho Co. Inc., 570 F. 2d

1202 (5th Cir. 1978), certification order, 580 F.

2d 726 (Sth Cir. 1978), cert. denied, 99 S. Ct. 350

To RE CRM eT RIO Serre hte r CAO a: aetna 36

Ward v. State Farm Mutual Automobile Insurance

Co., 539 F. 2d 1044 (5th Cir. 1976) ..........4.. 37

West v. American Telephone and Telegraph Co., 311

1: Be See oc aka oe eee 24

West v. Caterpillar Tractor Co., Inc., 504 F. 2d 967

(5th Cir. 1974), on certification, 336 So. 2d 80

Vii

Cases (Cont'd): —

(Fla. 1976), on receipt of answers following cer-

tification, 547 F. 2d 885 (5th Cir. 1977) ........ 36

Woods v. Cessna Aircraft Co., 553 P. 2d 900 (Kan.

ROTO vga ises KReR Reda ea oe ee 43, 44

Wren v. New York Life Insurance Co., 493 F. 2d

BOP Cite Cab, TATOD oc dccnc cane wee Oo cencores 28

Constitutional Provisions, Statutes, Rules and Regu-

lations:

Kentucky Constitution, Sections 109-124 .......... 35

SRA UREN i> iad iedospeeaees ies 4-5, 14, 19-20

KRS 342.610 ........ 5, 14, 15, 20, 21, 23, 25, 26, 46, 47, 48

ee PURO an ba van cas (eames ee bes ceaeewelen 5-6, 49

PR RD Sv o'ia as x sie ba nb Che ee oo eae 6-7, 14, 20

0 UR SERA) .. i ks kemis etic + su Naha Naa es 2

SA UGA AES 35 css Casket eee eeers.. Sues 8

Kentucky Rules of Civil Procedure, Rule 76.37. . .3-4, 16,

26, 35

803 Kentueky Administrative mecnmeE 25 :020,

ORI Be occ ich cc ook Oe eae Reo e 7,18

Other Authorities:

101 C.J.S. Workmen’s Compensation § 918 (1958)... 43

2A Larson’s Workmen’s Compensation Law § 72.20

CROTED Siawiks ewles uiics bab tee ee er eane many oh 44

1A Moore’s Federal Practice J 1.807[2] (1978) .... 24

Restatement (Second) Agency § 213 (1958) ....... 48

12 U.L.A., Uniform Certification of Questions of

Kenan Sct CURT |. ina ok Sa eee taeees 40

IN THE

SUPREME COURT OF THE UMTED STATES

October Term, 1978

No.

Buivue Diamonp Coat CoMPAaNny - - - Petitioner,

Vv.

JENNIFER Bocas, Caro Comss, GERALDINE

Coors, Vera GaLLoway, Lipsy Gress,

Mavonna GrirritH, Diank McKnicut,

GeraLpINE McKnieut, Puy.uts Pravey,

Vickie Scott, CreLinpa SPARKMAN,

Ernuet Sturaiy, Dessre Turner,

Repa Turner, and CuHarLotTre WIDNER,

Administratrices of their Decedents

and Individually - - Bt e Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Petitioner, Blue Diamond Coal Company, petitions for a

writ of certiorari to review the judgment of the United

States Court of Appeals for the Sixth Cireuit entered in

this case on January 23, 1979, and the order entered by that

court on March 9, 1979,.denying the petition for rehearing

with suggestion for rehearing en bane. A panel of the court

of appeals in a two to one decision reversed the judgment of

the United States District Court for the Eastern District of

Kentucky which had sustained Petitioner’s motion for sum-

mary judgment and dismissed the complaint.

OPINIONS BELOW

The majority and dissenting opinions of the court of

appeals are reported at 590 F. 2d 655 and are contained in

the Appendix hereto (App., 1-17a).. The memorandum

opinion and the order of the district court are unreported

but are contained in the Appendix hereto (App., 20-31a).

JURISDICTION

The judgment of the court of appeals was entered on

January 23, 1979 (App., 18a). A timely petition for re-

hearing with suggestion for rehearing en bane was denied

on March 9, 1979 (App., 19a), and the mandate issued on

March 19, 1979. Tae jurisdiction of this Court is invoked

under 28 U.S.C. § 1254(1).

QUESTIONS PRESENTED

1. Whether in this diversity case governed by Ken-

tucky law the court of appeals erred in failing to certify to

the Supreme Court of Kentucky the controlling questions

of Kentucky law relating to the correct interpretation of the

Kentucky Workmen’s Compensation Act where the resolu-

tion of those questions affects vital state interests and re-

quires an assessment of relevant state public policies?

2. Whether the court of appeals disregarded the doc-

trine of Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), when

it held under the undisputed factual situation presented

here that as a matter of law Petitioner as the parent cor-

poration could be neither a “contractor” nor an “employer”

immune from tort liability to the employees of its wholly

owned subsidiary corporation under the Kentucky Work-

men’s Compensation Act where the sole business of the

subsidiary was to perform mining work for Petitioner?

STATUTES, RULES AND REGULATIONS

INVOLVED

1. Rule 76.37 of the Kentucky Rules of Civil Procedure

adopted by the Supreme Court of Kentucky effective Sep-

tember 1, 1978, provides in pertinent part:

(1) Power to answer

The Supreme Court may answer questions of law

certified to it by the Supreme Court of the United

States, any Court of Appeals of the United States, or

the highest appellate court of any other state or the

District of Columbia when requested by the certifying

court if there are involved in any proceeding before it

questions of law of this state which may be determina-

tive of the cause tin pending in the certifying court

and as to which it appears to the certifying court there

is no controlling precedent in the decisions of the Su-

preme Court and the Court of Appeals of this state.

(2) Method of invoking

This Rule may be invoked by an order of any of the

courts referred to in paragraph (1) of this Rule upon

the court’s own motion or upon the motion of any party

to the cause.

(3) Contents of certification order

A certification order shall set forth

(a) The questions of law to be answered;

(b) A statement of all facts relevant to the ques-

tions certified and showing fully the nature of the

controversy in which the questions arose ;

(d) The names and addresses of counsel for each

appellant and appellee.

(4) Preparation of certification order

The certification order shall be prepared by the

certifying court, signed by the judge presiding at the

hearing, and forwarded to the Supreme Court by the

clerk of the certifying court under its official seal. The

Supreme Court may require the original or copies of

all or such portion of the record before the certifying

court as it deems necessary to a determination of the

questions certified to it.

(5) Costs of certification

Fees and costs shall be the same as in civil appeals

docketed before the Supreme Court and shall be equally

divided between the parties unless otherwise ordered

by the certifying court in its order of certification and

each party shall pay his share of the $100 filing fee

within the 60-day period allowed by paragraph (6) of

this Rule for the filing of briefs.

(6) Briefs and argument

Each of the parties desiring to be heard shall within

60 days after the date of the certifying order file with

the clerk of the Supreme Court 10 copies of a printed

brief setting forth his arguments. Oral arguments will

not be required or permitted unless so ordered by the

Supreme Court.

(7) Opinion

The written opinion of the Supreme Court stating

the law governing the questions certified shall be sent

by the clerk under the seal of the Supreme Court to the

certifying court and to the parties.

7 * * * * * *

2. Kentucky Workmen’s Compensation Act, KRS 342.-

004, provides:

This chapter shall be liberally construed on ques-

tions of law, as distinguished from evidence, and the

rule of law requiring strict construction of statutes in

derogation of the common law shall not apply to this

chapter. In any proceeding for the enforcer out of a

claim for compensation under the law for pneumo-

coniosis or silicosis it is presumed, in the absence of

substantial evidence to the contrary, that the claim

comes within the provisions cf the law.

3. Kentucky Workmen’s Compensation Act, KRS 342.-

610(1) and (2), provide:

(1) Every employer subject to this chapter shall be

liable for compensation for injury, occupational di-

sease, or death without regard to fault as a cause of the

injury, occupational disease, or death.

(2) A contractor who subcontracts all or any part

of a contract and his carrier shall be liable for the

payment of compensation to the employes of the sub-

contractor unless the subeontractor primarily liable for

the payment of such compensation has secured the

payment of compensation as provided for in this

chapter. Any contractor or his carrier who shall be-

come liable for such compensation may recover the

amonnt of such compensation paid and necessary ex-

penses from the subcontractor primarily liable there-

for. A person who contracts with another (a) to have

work performed consisting of the removal, excavation

or drilling of soil, rock or mineral, or the cutting or

removal of timber from land, or (b) to have work per-’

formed of a kind which is a regular or recurrent part

of the work of the trade, business, occupation or pro-

fession of such person, shall for the purposes of this

section be deemed a contractor, and such other person a

subcontractor. This subsection shall not apply to the

owner or lessee of land principally used for agriculture.

4. Kentucky Workmen’s Compensation Act, KRS 342.-

640, provides in pertinent part:

The following shall constitute employes subject to

the provisions of this chapter, except as exempted

under KRS 342.650:

(1) Every person, including a minor, whether law-

fully or unlawfully employed, in the service of an em-

ployer under any contract of hire or apprenticeship,

express or implied, aad all helpers and assistants of

employes whether paid by the employer or employee,

i‘ employed with the knowledge, actual or constructive,

of the employer.

(2) Every executive officer of a corporation.

* * . * * - >

(4) Every person performing service in the course

of the trade, business, profession or occupation of an

employer at the time of the injury.

5. Kentucky Workmen’s Compensation Act, KRS 342.-

690(1), provides:

(1) If an employer secures payment of compensa-

tion as required by this chapter, the liability of such

employer under this chapter shall be exclusive and in

place of all other liability of such employer to the em-

ploye, his legal representative, husband or wife, par-

ents, dependents, next of kin, and anyone otherwise

entitled to recover damages from such employer at law

or in admiralty on account of such injury or death.

For purposes of this section, the term “employer” shall

include a “contractor” covered by KRS 342.610,

whether or not the subcontractor has in fact, secured

the payment of compensation. The liability of an em-

ployer to another person who may be liable for or who

has paid damages on account of injury or death of an

employe of such employer arising out of and in the

course of employment and caused by a breach of any

duty or obligation owed by such employer to such other

shall be limited to the amount of compensation and

other benefits for which such employer is liable under

this chapter on account of such injury or death, unless

such other and the employer by written contract have

agreed to share liability in a different manner. The

exemption from liability given an employer by this

section shall also extend to such employer’s carrier and

to all employes, officers or directors of such employer

or carrier, provided the exemption from liability given

an employe, officer or director or an employer or ear-

rier shall not apply in any ease where the injury or

death is proximately caused by the wilful and unpro-

voked physical aggression of such employe, officer or

director.

6. 803 Kentucky Administrative Regulations 25 :020,

Section 3, provides:

Coverage of Subsidiary Corporations. Any cor-

poration which can qualify hereunder as an own risk

earrier which has wholly owned or controlled subsid-

iaries may qualify for itself and such subsidiary or

subsidiaries in one joint application to the board, pro-

vided the parent corporation has sufficient assets to

qualify as an own risk carrier both for itself and its

subsidiary or subsidiaries. However, such joint appli-

cation shall be accompanied by a certificate of the

secretary of both the parent and the subsidiary cor-

poration or each of the subsidiary corporations to the

effect that such corporations are making such joint

application and the joint and several liability of both

the parent and the subsidiary or subsidiaries for all of

the compensation claims asserted against them have

been authorized by due and proper orders and resoln-

tions of the respective boards of directors of such

parent and each subsidiary company. Such certificates

by such seeretaries of the parent and subsidiary cor-

porations shall be effective until revoked by such cor-

porations and until the board is notified in writing of

such revocation.

STATEMENT OF THE CASE

Alleging diversity of citizenship jurisdiction under 28

US.C. § 13832, Plaintiffs-Respondents on October 21, 1976,

instituted this action against Defendant-Petitioner arising

out of an explosion which occurred on Mareh 9, 1976, in the

Scotia Mine in Letcher County, Kentueky, and which re-

sulted in the deaths of Respondents’ husbands. The Scotia

Mine is operated by Scotia Coal Company (“Scotia”),

Petitioner’s wholly owned subsidiary.

Respondents sought to recover, individually and as per-

sonal representatives of the decedents’ estates, compensa-

tory and punitive damages under Kentucky law for, inter

alia, the alleged wrongful deaths of the decedents. The

original complaint alleged that Petitioner had “been in the

coal-mining business since approximately 1926”; that “for

the purpose of carrying on its activities in the production

and sale of coal defendant directly and through its subsid-

iary, Scotia Coal Company” operated three underground

coal mines in Letcher County, Kentucky; and that Peti-

tioner failed to cause the removal of unqualified super-

visory and safety officers, failed to make necessary ex-

penditures for personnel, equipment and training, failed to

exercise reasonable care in supervising ventilation and

safety, and failed to provide decedents with safe working

conditions and a safe workplace.

On June 21, 1977, Petitioner moved for summary judg-

ment on the ground that it was liable to Respondents for

the payment of workmen’s compensation benefits and was,

therefore, immune from all other liability under the Ken-

tucky Workmen’s Compensation Act, KRS 342.004-.990 (the

“Act”). Petitioner contended, in the alternative, that it

was either an “employer,” a “contractor,” or a “carrier”

under the Act, any one of which would render it liable for

the payment of workmen’s compensation benefits and im-

mune from all other liability. The following undisputed

facts were relied upon by Petitioner in support of its motion

for summary judgment :

Petitioner was originally organized in 1915 under the

laws of Tennessee and was reincorporated under the laws

of Delaware in 1922. During the years since its creation,

Petitioner has operated well in excess of twenty under-

ground coal mines in the states of Virginia, Kentucky and

Tennessee.

On January 4, 1961, Petitioner formed Scotia as a

wholly owned subsidiary for the purpose of developing a

large tract of coal reserves in Letcher County, Kentucky.

Prior to Scotia’s formation, Petitioner had purchased or

leased 12,589 acres of coal land in Letcher County, Ken-

tucky, and 2,460 adjacent acres in Virginia and had ex-

pended substantial sums in determining the extent of the

coal reserves on this property. These coal and mining

rights were subsequently leased by Petitioner to Scotia.

Petitioner later assigned its rights in the Scotia property

to a wholly owned subsidiary corporation, and wholly

owned subsidiary corporations presently sublease the coal

and mining rights to Scotia., Petitioner, as one of the

parties to that lease, guarantees its full performance by

Scotia.

Subsequent to December 4, 1974, all coal mining opera-

tions have been earried on in the name of wholly owned

subsidiary corporations of Petitioner with three subsidiary

corporations including Scotia being engaged in the business

of mining coal. However, the directors and officers of

Petitioner hold identical positions with Scotia. The activ-

ities and operations of Scotia are managed and directed by

these officers and directors who generally also hold the

same positions in, and have the same responsibilities to,

Petitioner’s other coal mining subsidiaries. Officers are

carried on Petitioner’s payroll and are paid only on its

check. Their salaries are allocated on the accounting

records based upon the relation between the total | onnage

produced by all mines and the tonnage produced by each

mine. Directors for Petitioner and each wholly owned

subsidiary receive a director’s fee only as directors of Blue

Diamond Coal Company.

Petitioner’s offices located in Knoxville, Tennessee are

organized primarily into a general mining operations de-

partment, an administrative department, and a sales de-

partment. The functions performed by these departments

are utilized by the various coal mining operations including

Scotia as the needs of the various mines require. Salaries

and other expenses incurred in the operation of these de-

partments are paid by Petitioner and are allocated on the

accounting records based primarily upon the relation be-

tween the total tonnage produced by all mines and the

tonnage produced by each mine.

The Vice President of Operations is the head of the gen-

eral mining operations department and is in charge of

mining operations. The same individual serves in this

capacity for Petitioner and for each of its coal mining sub-

sidiaries including Scotia. The General Manager of Mines,

who is carried as an employee on Petitioner’s payroll, is

directly responsible to the Vice President of Operations for

mining operations at all coal mines. Numerous other in-

dividuals, such as the Personnel Director, Compensation

Adjuster, Purchasing Agent, Chief Engineer, Industrial

Engineer, Safety Engineer-All Mines, and members of Peti-

tioner’s general mining operations staff and engineering

staff, have job responsibilities with respect to all coal min-

ing operations. Other functions utilized by all coal mining

operations on a centralized basis include a central mainte-

nance shop, a central laboratory for analyzing coal, and a

central warehouse for the purchase of all supplies and

equipment.

Petitioner’s accounting department prepares and main-

tains accounting records for Petitioner and its subsidiary

corporations including Scotia. Consolidated federal income

tax returns are filed, and a consolidated balance sheet is

prepared. Separate accounting books and ledgers are main-

tained for Petitioner and for Scotia although numerous ac-

counts which would be necessary for a completely separate

bookkeeping system are omitted from the Scotia books.

All coal produced by Petitioner’s subsidiary corpora-

tions including Scotia is sold by Petitioner in its name, and

almost all of the coal sold by Petitioner is produced by its

subsidiaries. All coal is shipped as directed by Petitioner,

and sales are invoiced to the customer by Petitioner. All

receipts are paid to it and are deposited in its bank account

and retained by it. Sales of coal are credited on the ac-

counting records to the particular subsidiary that produced

the coal so that it can be determined whether a particular

mine is making or losing money, and, consequently, the

Scotia ledgerbooks show income to Scotia from the sale of

coal. All salesmen are on Petitioner’s payroll. Petitioner

does not identify the coal sold by reference to a subsidiary

corporation but by reference to the mine from which it was

produced and by trade name.

The cash needs of each mine are met by a transfer of

funds from Petitioner to a bank account for that mine with

an appropriate entry in the inter-company accounts. Money

is transferred by Petitioner to a Scotia bank account only

to the extent necessary to pay expenses incurred. There is

no payment of interest or cash dividends among Petitioner

and its wholly owned subsidiaries. Investments are made

in Petitioner’s name.

Prospective employees submit applications at each mine

site on a standard form prepared by Petitioner. The appli-

cation of a person approved for hiring by Scotia’s General

Mine Superintendent is investigated by the Claims Adjuster

for all mines. The application and investigative report are

forwarded to Petitioner’s Personnel Director for all mines

and to its Administrative Vice President who have author-

ity to disapprove hiring any applicant.

Petitioner has for many years filed a joint application

with its operating subsidiaries to act as a self-insurer for

workmen’s compensation liabilities and has been permitted

to be a self-insurer by the Kentucky Workmen’s Compensa-

tion Board with liability in excess of a specified amount

being covered by insurance. The bond in effect at the time

of the explosion is executed solely by Petitioner and consti-

tutes a direct obligation by it to persons entitled to sums

due under the Act. The “Certificate” issued by the Ken-

tucky Workmen’s Compensation Board for the relevant

period certifies that Petitioner and its named subsidiaries

being engaged in the business of mining coal and being sub-

ject to the Act have made proof of financial ability to pay

compensation directly. Necessary funds to provide for the

payment of workmen’s compensation benefits are paid into

trust by Petitioner, and a bookkeeping entry is subse-

quently made allocating this expense.

The facts upon which Respondents primarily relied in

opposition to the motion for summary judgment were that

Petitioner and Scotia have separate payrolls, paychecks,

and bank accounts; that they have separate federal em-

ployer identification numbers and file separate payrell tax

withholding returns; that the bargaining unit employees at

Scotia are covered by a collective bargaining agreement

entered into by Scotia and the Scotia Employees Associa-

tion, Ine.; and that Petitioner and Scotia have over ‘he

years sued and been sued in their respective corporate

names and have been identified by their separate corporate

names in various legal documents and government filings.

The district court, by order of July 26, 1977, passed the

motion for summary judgment to the merits. Shortly

thereafter, Respondents filed an amended complaint which

deleted many of the allegations contained in the original

complaint. The amended complaint alleged that Petitioner

“provides management, sales, accounting, engineering, in-

vestment and other services” to Scotia including services

relating to mine safety. It was alleged that Petitioner “had

begun to prepare for the resumption of daily mining in the

deadend heading of Two Southeast Mains” and had decided

to open and operate a new section without proper prepara-

tion and planning; that Petitioner “caused, encouraged, per-

mitted to continue, and failed to correct” various conditions

and practices in the Scotia Mine; and that Petitioner failed

to authorize, approve, or permit necessary expenditures for

personnel, equipment, and training and failed to exercise

reasonable care in supervising ventilation and safety at the

Scotia Mine.

A trial before a jury commenced on September 6, 1977.

At the close of Respondents’ case after three days of testi-

mony before the jury, Petitioner moved for a directed ver-

dict and also renewed its motion for summary judgment.

After hearing arguments, the district court orally sustained

Petitioner’s motion for summary judgment.

A separate Order and Memorandum Opinion were en-

tered on September 21, 1977. The district court stated

(App., 27a) :

The undisputed course of conduct between Blue Dia-

mond and Scotia, considered as contracting parties, is

clear. The intent of the parties as to their respective

functions in the Oven Fork, Kentucky mining opera-

tion and the consideration to be exchanged between

them are beyond doubt. I find a contract to exist be-

tween the parties from 1962 to date.

The district court held that the contract was for Scotia to

perform work for Petitioner which involved the removal,

excavation or drilling of mineral or which was a part of

Petitioner’s regular or recurrent business or occupation

(App., 28a). Accordingly, the present common law action

was held barred because Petitioner was a “contractor”

within the meaning of KRS 842.610 and was exempt from

tort liability under KRS 342.690 which provides that the lia-

bility of an “employer” under the Act “shall be exclusive

and in place of all other liability” and that an “employer”

shall “include a ‘contractor’ covered by subsection (2) of

KRS 342.610, whether or not the subcontractor has in fact,

secured the payment of compensation.”

Respondents appealed to the United States Court of Ap-

peals for the Sixth Cireuit. On January 23, 1979, that court

rendered its opinion, written by Judge Merritt with Judge

Cecil concurring and Judge Peck dissenting, reversing

Judge Hermansdorfer and holding that Petitioner is neither

an “employer” nor a “contractor” within the meaning of the

Act. The majority opinion rests essentially upon three

premises :

(1) The principle requiring workmen’s compensation

statutes to be liberally construed (KRS 342.004) does not

apply if immunity from tort liability is the issue. The ma-

jority so held despite the fact that it is well settled that

workmen’s compensation statutes are to be liberally con-

strued regardless of whether the injured party seeks to in-

voke their protection or to deny coverage.

(2) Petitioner did not contract with Scotia within the

meaning of KRS 342.610 for Scotia to perform work for the

parent company thereby making it liable for workmen’s

compensation benefits and conversely immune from a tort

action. The majority so held notwithstanding the district

judge’s finding that a contract did exist between Petitioner

and Scotia and the recognition by the court of appeals that

Scotia performed mining work for Petitioner. :

(3) Petitioner was not. an “employer” under the Act so

as to be subject to workmen’s compensation liability and to

be immune from tort liability. The majority so held despite

its earlier holding that Petitioner and Scotia were not sufli-

ciently separate to be regarded as contracting parties within

the meaning of KRS 342.610.

As noted in Judge Peck’s disseuting opinion, “the ma-

jority’s decision means that a parent company cannot be

held liable for Workmen’s Compensation benefits owed to

the employees of its subsidiary” (App., 17a). Thus, the

holding of the majority opinion will obviously lessen the in-

centive for the parent to maintain workmen’s compensation

coverage and, as a corollary, to be responsible for safety

functions in that workmen’s compensation and safety are

interrelated, the injury experience having a direct bearing

on the cost of workmen’s compensation coverage. Under

the majority opinion, the parent can free itself from these

workmen’s compensation obligations with impunity and is

encouraged to withdraw from involvement with safety func-

tions because to do otherwise would subject it to potential

but undefined tort liability.

Petitioner timely filed a petition for rehearing with a

suggestion for rehearing en bane. In that petition the court

of appeals was requested to make use of Rule 76.37 of the

Kentucky Rules of Civil Procedure which authorizes the

Kentucky Supreme Court to answer questions of law certi-

fied to it by a United States Court of Appeals. On March 9,

1979, the court of appeals entered its order summarily deny-

ing the petition for rehearing and reciting that a majority

of the judges had not requested a rehearing en bane (App.,

19a). That order did not indicate what, if any, considera-

tion had been given to invoking Kentucky’s recently adopted

certification procedure and did not state why that procedure

was not employed to authoritatively determine the con-

trolling issues of Kentucky law.

REASONS FOR GRANTING THE WRIT

I. In Ignoring Kentucky’s Certification Procedure and Re-

fusing to Certify to the Supreme Court of Kentucky the

Controlling Public Policy Issues Involved as to the

Proper Interpretation of Kentucky’s Workmen’s Com-

pensation Act, the Court of Appeals Adopted an Ap-

proach Patently Contrary to the Teachings of This

Court.

A. This Case Presents Substantial Issues of Kentucky Statu-

tory Law Involving Important State Public Policy Con-

siderations.

The availability of the workmen’s compensation defense

to bar maintenance of the present action turns upon the in-

terpretation of several key sections of Kentucky’s Work-

men’s Compensation Act. The proper construction of these

sections undeniably is of the utmost importance to adminis-

tration and implementation of Kentucky’s Workmen’s Com-

pensation Act. All of the sections of the Act relied upon by

Petitioner were added as a part of extensive amendments

to the Act in 1972 and were patterned upon model legisla-

tion recommended by the Council on State Governments.

The construction of these key sections of the Act for the

first time with respect to the precise situation presented here

should be made by the Supreme Court of Kentucky.

Faced with the present decision, a parent corporation

such as Petitioner could take one of two courses of action

either of which would have a profound impact upon Ken-

tucky law. If the parent is not liable for workmen’s com-

pensation, its incentive to maintain that coverage is lessened

and its concern with safety measures, which have a direct

bearing upon the cost of maintaining workmen’s compensa-

tion coverage, will be correspondingly reduced. At the

same time, a parent is further encouraged to withdraw its

involvement (and its purse strings) in order to maintain

the established balance between liability without regard to

fault for compensation and immunity from tort liability.

On the other hand, a parent corporation deciding not to

withdraw from such direct operational involvement may

deem it necessary to dissolve or alter its existing corporate

structure in order to restore that balance. In either event,

these potential ramifications of the present decision should

be evaluated by the Supreme Court of Kentucky rather than

by the court of appeals which, although referring to the

absence of Kentucky lay, vefused to use the only certain

way to determine state law.

The majority opinion refers to certain social policy con-

siderations such as the lleged inadequacy of workmen’s

compensation benefits and\the needfor occupational safety.

To the extent that these considerations are matters for

judicial rather than legislative resolution, Kentucky’s public

policy is peculiarly suited for consideration by the Ken-

tucky Supreme Court and not by the court of appeals.

On the other hand, the majority opinion fails to properly

assess or consider highly relevant public policies under-

lying Kentucky’s workmen’s compensation scheme. For ex-

ample, the majority does not consider whether its decision

may frustrate the regulatory policy adopted by the Ken.

tucky Workmen’s Compensation Board, the state agency

charged with administration of the Act, authorizing a par-

ent corporation to qualify as a self-insurer for itself and its

wholly owned or controlled subsidiaries so that the parent

and subsidiary corporations are jointly and severally liable

for all compensation claims asserted against them. 803

KAR 25 :020, Section 3.

Moreover, as noted in Judge Peck’s dissenting opinion,

the effect of the decision is to insulate a parent corporation

such as Petitioner from liability for workmen’s compensa-

tion benefits to employees of its wholly-owned subsidiary

corporation. Where the parent-subsidiary relationship is

adopted as a means of carrying on an integrated business

operation with the parent actively controlling and directing

the operations of the subsidiary in carrying out the busi-

ness, the clear effect of the decision is to undermine a funda-

mental policy of workmen’s compensation laws. That

policy is that those who carry on and benefit from a busi-

ness should be directly responsible to the workers to provide

without regard to fault guaranteed payments to all injured

employees and should not be allowed to avoid that obliga-

tion by getting work done through others.

The majority acknowledges that there is no question that

Scotia performed mining work for Petitioner. Certainly

the policy of contractor-under statutes to prevent evasion

of workmen’s compensation obligations applies regardless

of whether a corporation decides to accomplish its business

by interposing an unrelated third party or a wholly owned

subsidiary, between itself and the employees who are util-

ized in performing that business. Simply stated, this case

requires an assessment of important state policies and

that assessment should be made by the Supreme Court of

Kentucky.

B. Certification Was Mandatory Where the Majority Opinion

Was Without Basis in Kentucky Law.

In an obviously result oriented opinion, the majority

either fails to correctly apply or ignores Kentucky law bear-

ing directly upon the important issues of Kentucky statu-

tory law presented by this case. There exists no con-

trolling precedent for the majority’s decision which is so

lacking in support in Kentucky law as to render certifica-

tion mandatory.

First, the majority bases its decision upon the statement

that “[cJourts have responded by liberally construing the

coverage provisions of workmen’s compensation acts while

narrowly construing the immunity provisions” (App., 6a)

and that “Kentucky courts have given the ‘liberal’ construc-

tion required by the express language of the Act by broadly

construing the coverage provisions of the Act and narrowly

construing the immunity provisions” (App., 7a). As is

more fully discussed in Section III of this Petition, the uni-

versally accepted rule is that workmen’s compensation stat- _

utes are to be liberally construed regardless of whether the

injured party seeks the protection of those statutes or to

deny coverage and that one who can be held liable for work-

men’s compensation is not liable in tort. The Act specifi-

eally states that it “shall be liberally construed” (KRS

342.004), and the exclusive remedy provision (KRS 342.690)

is a part of the Act. To apply a double standard and con-

strue the Act liberally or narrowly depending upon the

remedy sought by the injured worker would plainly violate

the Act.

The majority opinion cites its earlier decision in Bryant

v. Old Republic Insurance Co., 481 F. 2d 1885 (6th Cir.

1970), for the proposition that the Kentucky court “seems to

be narrowing the concept of employer’s immunity” under

the Act. (Emphasis added.) Bryant was itself a two to

one decision where the Sixth Cireuit rejected the view of an

experienced Kentucky federal district court judge and held

an insurance company subject to a tort suit under Kentucky

law for negligently inspecting, or failing to inspect, a coal

mine on which it was the workmen’s compensation carrier.

At the next regular session of the Kentucky legislature in

1972, the Kentucky General Assembly extensively amended

the Act to broaden its coverage and, as a part of those

amendments, specifically overruled the result in Bryant.

Yet, the majority opinion continues to rely on Bryant and

refuses to certify the question to the only court which would

not need to guess what “seems” to be the Kentucky law but

which could conclusively adjudicate the issue.

Secondly, the majority’s construction of Kentucky’s con-

tractor-under statute (IKRS 342.610) is of such questionable

validity as to require certification of this important state

public policy question. The majority opinion concludes

1In this regard it is noteworthy that the court of appeals neg-

lected to refer to the only decision cited to it specifically consider-

ing the applicability of a ‘‘contractor under’” statute similar to

KRS 342.610 in the parent-subsidiary context. Coco v. Winston

Industries, 330 So. 24 649 (La. App. 1975), judgment set aside on

other grounds, 341 So. 2d 332 (La. 1976), directly holds that, as

applied to the parent corporation, a parent-subsidiary relationship

under facts similar to those existing here is covered by a statute

like KRS 342.610.

that there is no question that Scotia performed mining

work for Petitioner and that the only question was whether

the work was performed pursuant te a “contract.” The ma-

jority cites Elkhorn-Hazard Coal Land Corp. v. Taylor, 539

S. W. 2d 101 (Ky. 1976), as authority that the phrase “one

who contracts” contained in KRS 342.610 should be read

narrowly in that it “appears to contemplate a regular, en-

forceable contract between independent parties dealing with

each other at arm’s length.” (Emphasis added.)

Here again, the court speculates as to what “appears”

to be the Kentucky law rather than allowing the Kentucky

court to reliably adjudicate that issue. The court’s con-

struction is an unmistakable example of judicial legislation

and underetts the whole philosophy underlying workmen’s

compensation laws. To reach a result which would allow

an injured worker’s compensation claim to be defeated by

the parent corporation because of some defect in a contract

between it and its subsidiary would be a definite step back-

ward in an area where workmen’s compensation ‘aws have

been substantially improved for workers in recent years.

Elkhorn-Hazard simply held that a lessor of coal land

like any other lessor is not liable to the lessee’s employees

for workmen’s compensation benefits. There was no issue

in that case as to the existence of a contract because there

was a formal written lease. It would be an unprecedented

departure from existing law if any court should hold that

an ordinary lessor is merely by reason of the lease liable

for workmen’s compensation benefits to the lessee’s em-

ployees. The Kentucky court succinctly stated the reasons

why the “contractor under” statute did not apply in that

ease:

In this case however there is no lease of premises

to be used as a marketing outlet and aside from a pro-

vision in its articles of incorporation listing mining as

one of its many business purposes there is no evidence

in the record upon which it could be concluded reason-

ably that Elkhorn-Hazard has actually engaged in the

business of mining.

There is no basis in the record for a conclusion that

Elkhorn-Hazard was conducting a mining business

through the use of a lease or that it was conducting any

work through the use of a lease which was a regular

part of its business operations and which normally

would have been accomplished through the use of its

own employees.

It does not appear to us that the lease can be con-

strued as a contract to have work done for Elkhorn-

Hazard. The work performed by M & A Coal Company

was done for itself in a proprietary capacity. M& A

Coal Company was mining the coal for its own use and

not for Elkhorn-Hazard. Under the lease in question

M & A Coal Company alone benefited from increases in

the market price of coal or from efficiencies in opera-

tion. Likewise M & A alone bore the loss of decreased

prices or inefficient operation.

oad * *

There is no showing in the record that the lease ar-

rangement resulted in a payment to M & A Coal Com-

pany of a price less than the true market value or price

of the coal. Consequently we do not regard it as a

matter of controlling importance that the lease required

the coal to be weighed at the tipple of corporations con-

trolled by the president of Elkhorn-Hazard.

539 S. W. 2d at 104-05. As noted in the opinion of the dis-

trict court, “fe]ach of the factors identified by the Elkhorn-

Hazard court as being factually material to application of

the Act is satisfied by undisputed facts in the instant case”

(App., 28a).

The majority’s narrow construction of KRS 342.610 di-

rectly conflicts with the decision of the Kentucky Court of

Appeals in Upper Elkhorn Coal Co. v. Thornberry,

564 S. W. 2d 842 (Ky. App. 1977) (discretionary review

denied by Kentucky Supreme Court on May 16,1978). The

court there held, in a closely analogous situation, that KRS

342.610 was applicable and that the company was liable for

workmen’s compensation benefits to the dependents of a

deceased miner because the company received the benefit of

the coal production. The decisive effect of this decision is

vividly demonstrated in Judge Peck’s dissenting opinion

(App., 16-17a) :

For example, in Upper Elkhorn Coal Co. v. Thorn-

berry, Ky. App., 564 S. W. 2d 843 (1977), the Coal

Company was being sued for Workmen’s Compensa-

tion benefits. The Company argued that it was not a

contractor under the Act, and thus not liable for bene-

fits. A partnership owned the lease for the coal fields,

and had contracted with the decedent’s employer to

produce coal and deliver it to Upper Elkhorn. Despite

the fact that there was no contract at all with Upper

Elkhorn, much less a “formal” one, the court held that

the company was liable for benefits under the Act as a

“contractor” because the two partners were acting for

the benefit of Upper Elkhorn. It noted that the pur-

pose of the arrangement was to secure production for

Elkhorn, and that the benefit of all coal production fell

to Upper Elkhorn. Similarly, in this case, there may

not be a formal contract, but there is certainly an “ar-

rangement,” through which Blue Diamond obtains the

benefit of the production of coal.

Astonishingly, the majority opinion makes no effort to

consider the effect of Upper Elkhorn upon the proper in-

terpretation of KRS 342.610 and does not even cite that de-

cision. There can be no doubt, however, that the court of

appeals was required to give effect to that decision under

the Erie doctrine. The rule is summarized as follows in

1A Moore’s Federal Practice § 1.307[2] (1978):

[Where the state law supplies the rule of decision, it

is the duty of federal courts to ascertain and apply that

law even though it has not been expounded by the high-

est state court, and * * * since a lower state court

is an organ of the state, its determination, in the ab-

sence of more convincing evidence of.what the state

law is, must be followed by a federal court i in deciding

a question governed by state law.

* * *

Where the federal court, however, cannot, on the

available materials, make a confident guess how the

state’s highest court would rule on a particular point,

certification to the state’s highest court, if available,

should be utilized.

As was stated in West v. American Telephone and Tele-

graph Co., 311 U.S. 223 (1940):

Where an intermediate appellate state court rests

its considered judgment upon the rule of law which it

announces, that is a datum for ascertaining state law

which is not to be disregarded by a federal court unless

it is convinced by other persuasive data that the high-

est court of the state would decide otherwise.

311 U.S. at 237. See also Fidelity Union Trust Co. v. Field,

311 U. S. 169 (1940) ; Six Companies of California v. Joint

Highway District, 311 U. S. 180 (1940) ; Stoner v. New York

Life Insurance Co., 311 U.S. 464 (1940) ; Cf. Commissioner

v. Estate of Bosch, 387 U. S. 456 (1967). —

Nor does the majority opinion refer to several other

Kentucky cases which are clearly not consistent with its

narrow construction of KRS 342.610. For example, United

Engineers and Constructors, Inc. vy. Branham, 550 8S. W. 2d

540 (Ky. 1977), indicates how the Kentucky court would

rule on this issue. In that common law action for damages

where the Kentucky court held that substance must prevail

over form in considering the existence of an employment

relationship, one question related to the existence of a sub-

contract. The court said:

Whether that arrangement justifies the inflexible label

of “subcontract” as it might be considered apart from

the compensation statutes we need not decide. Under

those statutes, however, we think that it does. . . . In

the “up-the-ladder” context we construe the relation-

ship between United and Lowman to have been that of

contractor and subcontractor. United therefore was

not “some other person than the employer.”

550 S. W. 2d at 547.

That the Kentucky court will not adopt a narrow statu-

tory construction which would allow avoidance of work-

men’s compensation liability is further indicated by the

result reached when one subject to an employer’s control

hires others to assist him in the performance of the busi-

ness. Those so hired will be deemed employees, and the

employer wili net be liable in tort but will be prevented

from avoiding liability for workmen’s compensation bene-

fits in this fashion. Mahan v. Litton, 3218. W. 2d 243 (Ky.

1959). See King v. Shelby Rural Electric Cooperative

Corp., 502 S. W. 2d 659 (Ky. 1973), cert. denied, 417 U.S.

932 (1974).

Thirdly, the majority’s reasoning in holding that Peti-

tioner is not an “employer” represents but further evidence,

as is more fully discussed in Section III of this Petition,

that certification was essential. In discussing the ”con-

tractor-under” issue, the majority for all practical purposes

holds the finding of the district court that a contract existed

to be clearly erroneous; it refuses to accept the proposition

that a parent and subsidiary corporation can enter into a

contract implied in fact although it is beyond question that

contracts implied in fact are recognized under Kentucky

law. The majority even implies that a parent and sub-

sidiary cannot enter into a contractual relationship. The

majority thus effectively disregards the separateness of the

corporations when considering the issues raised under KRS

342.610. However, in concluding that Petitioner and its

wholly owned subsidiary cannot be considered a single, in-

tegrated enterprise for purposes of the Act, the majority

again adopts a double standard and blatantly ignores the

reasoning employed in deciding that Petitioner and Scotia

are too close to contract for purposes of the issues raised

under KRS 342.610. We submit that the Supreme Court

of Kentucky, if given the chance, would not adopt such a

tortured, illogical, and contradictory line of reasoning.

C. Certification Was The Only Sensible Alternative Once It

Became Apparent the Federal Judges Who Considered the

Case Were in Disagreement as to the Correct Interpretation

of Kentucky Law.

This case was argued and submitted for decision prior

to adoption by the Kentucky Supreme Court of Rule 76.37.

However, Rule 76.37 became effective on September 1, 1978,

several months prior to rendition of the decision on Jan-

uary 23, 1979. It is our contention that the need for cer-

tification became acutely apparent during the course of

deliberation by the court of appeals and that that court

should have invoked Rule 76.37 sua sponte and, in any

event, should have made use of the certification procedure

when requested to do so by Petitioner on petition for

rehearing.

The majority opinion states that this case raises “serious

questions of first impression under Kentucky’s Workmen’s

Compensation Act” (App., 2a); that the Act does not “ad-

dress the question of a parent corporation’s immunity from

common law tort liability for injuries to its subsidiary’s em-

ployers, [sic] nor does the Kentucky case law interpreting

the Act”; and that “[f]ew cases from other jurisdictions

touch upon the question, and the general legal literature in

the field does not deal with it” (App., 5a). As previously

indicated, Kentucky law is not nearly so devoid of guidance

as the majority would have one believe. The majority

opinion in fact ignores or misapplies relevant Kentucky law

and is so lacking in controlling Kentucky precedent as to

have required certification. However, under the majority’s

own characterization, the need for certification is clear.

Instead, the court of appeals chose to rely upon abstract

law review articles and theories of jurisprudence espoused

by the legal commentators rather than upon the judicial pro-

nouncement of the only court which could authoritatively

answer the important issues raised by this case.

The case for certification became even more compelling

once it became apparent that the federal judges who con-

sidered the case could not agree as to the applicable Ken-

tucky law. At the time the case was submitted to the court

of appeals, a respected federal district court judge experi-

enced in Kentucky law had rendered an opinion analyzing

applicable Kentucky law and applying it to the factual

situation. In view of the nature of the questions involved,

established practice dictated that great weight be accorded

cudge Hermansdorfer’s view as to Kentucky law.

The rule is well settled in the Sixth Circuit that, when

state courts have not adjudicated a doubtful question of

statutory construction, considerable weight must be given

to the view of the district judge as to the law of the state

in which he sits. Martin v. University of Louisville, 541 F.

9d 1171 (6th Cir. 1976); Filley v. Kickoff Publishing Co.,

454 F. 2d 1288 (6th Cir. 1972); Rudd-Melikian v. Merritt,

282 F, 2d 924 (6th Cir. 1960) ; Jn Re Glassman, 262 F. 2d 857

(6th Cir. 1958). That rule is established in other cireuits

as well. See, e.g., American Timber and Trading Co, v.

First National Bank of Oregon, 511 F. 2d 980 (9th Cir.

1973), cert. denied, 421 U. 8S. 921 (1975) (clearly wrong) ;

Wren v. New York Life Insurance Co., 493 F. 2d 8389 (5th

Cir. 1974) (great weight); Brennan v. University of Kan-

sas, 451 F. 2d 1287 (10th Cir. 1971) (clearly erroneous) ;

Texaco, Inc. v. Pruitt, 396 F. 2d 237 (10th Cir. 1968) (court

of appeals would accept federal trial judge’s interpretation

of Utah Workmen’s Compensation Act unless convinced

that he was clearly wrong).

Thus, once the court of appeals recognized that it might

not follow the view of a Kentucky district judge as to an

important issue of unsettled statutory law, the need for

certification should have been apparent, and the available

certification procedure should have been used. With all due

deference, neither of the two judges who formed the major-

ity can be regarded as having any expertise in Kentucky

law. The majority certainly cannot claim to be as con-

versant with Kentucky law as the district judge who sits in

Kentucky and obviously was not as well qualified to deter-

mine Kentucky law as the Kentucky Supreme Court would

have been.

There can be no doubt the court was aware of the certi-

fication procedure prior to rendering its decision. The

author of the majority opinion in fact referred to Ken-

tucky’s certification procedure with approval in Union

Light, Heat and Power Co. v. U. S. District Court, 588

PF. 2d 543 (6th Cir. 1978) (argued October 31, 1978), a

case similar to this in that both involve highly publicized

and tragic incidents in recent Kentucky history, i.e., the

Beverly Hills Supper Club fire in Northern Kentucky and

the Scotia Mine explosions in Eastern Kentucky.

Moreover, if there was ever any doubt about the need

for certification that doubt disappeared when it developed

that the appeals court would not only reject the view of an

experienced Kentucky federal district judge but could not

itself agree as to the proper interpretation of the Act. See

Spector Motor Co. v. McLaughlin, 323 U.S. 101, 104 (1944),

where, in ordering abstention, this Court stated: “That the

answers are not obvious is evidenced by the different con-

clusions as to the scope of the statute reached by the two

lower courts.” The net effect is that the federal judges

who heard this case are evenly divided as to whether the

present common law action is barred under Kentucky law.

Nevertheless, the court of appeals refused to allow the only

court which could authoritatively resolve this deadlock to

do so.

D. Under the Circumstances Presented by This Case Certifica-

tion was Required by the Decisions of this Court.

In light of the foregoing circumstances, certification of

the important issues of Kentucky law raised by this case

affecting the state’s public policy in administering its work-

men’s compensation law was mandatory and the failure to

certify those issues was a clear abuse of discretion. Specific

attention was first directed to the use of a state certification

procedure in Clay v. Sun Insurance Office, 363 U. S. 207

(1960), on certification, 183 So. 2d 735 (Fla. 1961), a di-

versity action seeking recovery on an insurance policy. The

district court had awarded judgment to petitioner based

upon a Florida statute, but the court of appeals reversed on

the ground the Florida statute could not be applied, con-

sistent with due process, to a policy made in [linois.

Noting that the court of appeals had indicated it could not

make a confident guess how the Florida Supreme Court

would construe the statute, this Court in reversing stated

that the Florida legislature

with rare foresight, has dealt with the problem of

authoritatively determining unresolved state law in-

volved in federal litigation by a statute which permits

a federal court to certify such a doubtful question of

state law to the Supreme Court of Florida for its de-

cision. * * * Even without such a facilitating stat-

ute we have frequently deemed it appropriate, where a

federal constitutional question might be mooted

thereby, to seeure an authoritative state court’s de-

termination of an unresolved question of its loeal law.

363 U.S. at 212.

Shortly thereafter, this Court itself invoked Florida’s

certification procedure in Aldrich v. Aldrich, 375 U.S. 75,

949 (1963), to obtain an authoritative answer to questions

of Florida law. The advisability of certification quickly

became apparent when, after receiving the answers of the

Florida Supreme Court (163 So. 2d 276 (Fla. 1964)), this

Court summarily reversed noting that it had become “plain

that the judgment of the Supreme Court of Appeals of

West Virginia, based as it was on a misapprehension re-

garding the law of a sister state, cannot stand.” Aldrich v.

Aldrich, 378 U. S. 540, 548 (1964). See also Dresner v. Cily

of Tallahassee, 375 U. S. 136 (1963), on certification, 164

So. 2d 208 (Fla. 1964), where this Court also invoked

Florida’s certification procedure.

The wisdom of certification was again demonstrated in

Lehman Brothers v. Schein, 416 U.S. 386 (1974), where the

point had been first presented to the court of appeals on

petition for rehearing. In reversing and remanding for

consideration of the propriety of invoking certification, the

Court stated the following guidelines :

We do not suggest that where there is doubt as to local

law and where the certification procedure is available,

resort to it is obligatory. It does, of course, in the long

run save time, energy, and resources and helps build a

cooperative judicial federalism. Its use in a given case

rests in the sound discretion of the federal court.

Here resort to it would seem particularly appro-

priate in view of the novelty of the question and the

great unsettlement of Florida law, Florida being a

distant State.

416 U.S. at 390-91. The Supreme Court of Florida subse-

quently rejected the majority opinion originally rendered

by the Second Circuit and approved the dissenting opinion

of Judge Kaufman. On certification, 313 So. 2d 739 (Fla.

1975), on receipt of answers following certification, 519 F.

2d 453 (2nd Cir. 1975).

This Court again spoke with approval of certification in

Bellotti v. Baird, 428 U. S. 132 (1976), an abstention case

where a three-judge district court had enjoined operation of

a Massachusetts statute governing the type of consent re-

quired before an abortion could be performed on an un-

married woman under eighteen. In holding abstention ap-

propriate and remanding for certification of relevant issues

of state law, the Court noted that it often had remarked that

the equitable practice of abstention is limited by considera-

tions of delay and expense but that the availability of an

adequate certification procedure does in the long run save

time, energy and resources and helps build a cooperative

judicial federalism. The Court observed that in abstention

eases the availability of certification greatly simplifies the

analysis,

At issue in Elkins v. Moreno, 435 U.S. 647 (1978), was

whether non-immigrant alien residents of Maryland had

been wrongly denied “in-state” status for tuition purposes

under federal law. This Court concluded that whether

“G-4" aliens had capacity to aequire Maryland domicile

turned in part upon Maryland common law and sua sponte

certified that issue to the Court of Appeals of Maryland.

The Court observed that, in a federal system, it is

desirable that questions of law which, like domicile, are

both intensely local and immensely important to a wide

spectrum of state government activities be decided in

the first instance by state courts. This may not always

be possible nor is it always required, but where as here

there is an efficient method for obtaining a ruling from

the highest court of a state we do not hesitate to avail

ourselves of it.

435 U.S. at 662 n. 16.

Decisions of this Court directing abstention under cir-

cumstances similar to those existing here clearly support

the conclusion that the court of appeals should have used

the far less drastic and more desirable certification pro-

cedure. For example, in Louisiana Power & Light Co. v.

City of Thibodaux, 360 U. S. 25 (1959), the city had filed a

petition for expropriation in state court for the taking of

land and the action was removed to federal court. In up-

holding the action of the district court which on its own

motion stayed proceedings and directed the parties to

secure a declaratory judgment in state court, this Court

noted that a statute seemed to grant the power exercised by

the city but stated;

But that statute has never been interpreted, in respect

to a situation like that before the judge, by the Louisi-

ana courts and it would not be the first time that the

authoritative tribunal has found in a statute less than

meets the outsider’s eye. Informed local courts may

find meaning not discernible to the outsider. The con-

sequence of allowing this to come to pass would be that

this case would be the only case in which the Louisiana

statute is construed as we would construe it, whereas

the rights of all other litigants would be thereafter

governed by a decision of the Supreme Court of

Louisiana quite different from ours.

360 U.S. at 30.

In Kaiser Steel Corp. v. W.S. Ranch Co., 391 U.S. 598

(1968), at issue was whether a trespass was permitted by

state law in order to use water rights. In a per curiam

opinion, this Court reversed holding that the court of ap-

peals erred in denying a motion to stay until the state law

issues could be settled in a declaratory judgment suit then

pending in state court.2. The state law issues were deemed

of “vital concern” to the state and the issue to be “a truly

novel one.” Sound judicial administration required “that

the parties in this ease be given the benefit of the same rule

of law which will apply to all other businesses and land

owners concerned with the use of this vital state resource.”

391 U. S. at 594. Following this Court’s decision, the

Supreme Court of Nevada determined that a private cor-

poration did have the right to condemn under state law for

the purpose of securing water and expressly rejected the

holding of the Tenth Cireuit. Kaiser Steel Corp. v. W. S.

Ranch Co., 467 P. 2d 986 (N. M. 1970). See also Reetz v.

Bozanich, 397 U.S. 82 (1970), where this Court held that a

2The motion to abstain apparently was made on petition for

rehearing. See W. S. Ranch Co, v. Kaiser Steel Corp., 388 F. 2d

257 (10th Cir. 1967).

stay should have been granted so that the first judicial

application of Alaska constitutional provisions pertaining

to a natural resource the management of which was a

matter of great state concern would be by an Alaska court.

The scope and proper application of Kentuecky’s Work-

men’s Compensation Act is unquestionably of grave concern

to Kentucky. The present case requires an assessment of

relevant state public policies in the context of the present

factual sitnation, and, as noted in the majority opinion, the

multi-unit enterprise is now the norm in the American

economy. The statutes construed by the courts below have

been considered by the Supreme Court of Kentucky on only

one other oceasion and have never been interpreted by

Kentucky’s highest court with respect to the precise situa-

tion presented here. In view of the importance of the issues

presented and the fact that the federal judges considering

the case were divided as to the proper resolution of these

difficult state law issues, the failure to certify the issues to

the Supreme Court of Kentucky was an abuse of discretion

and in conflict with principles established by the foregoing

decisions of this Court.

With certification, the decision of the court of appeals

need not rest upon a speculative forecast but could be based

upon an authoritative determination. With certification,

uniformity of state law could be assured, and the parties

would have the benefit of the same rule which would be

applied in a state court. Future litigants would know

whether claims such as those asserted here are maintainable

under Kentucky law, and a possible conflict with later state

court decisions would be avoided.

With certification, determination of an important ques-

tion of statutory law involving a significant policy choice

for the state would be made by the court which should make

that determination. By enacting the certification pro-

cedure, it must be assumed that the Kentucky Supreme

Court indicated its desire to decide such important ques-

tions of Kentucky law.

With certification, the disadvantages associated with ab-

stention would be largely avoided. For example, under

Rule 76.37 of the Kentucky Rules of Civil Procedure, each

party may within 60 days after the date of the certifying

order file a brief setting forth his position. Oral argument

will not be permitted unless specifically ordered by the Su-

preme Court of Kentucky. Thus, the added expense is not

that of a separate lawsuit but only of additional briefing.

The delay is not that of instituting a separate lawsuit and

proceeding through state trial and appellate courts but only

the sixty day period plus the time required to obtain the

answers to the certified questions from the Kentucky Su-

preme Court. In this respect, it is significant that Ken-

tucky has recently adopted a new judicial article, Kentucky

Constitution, Sections 109-24, creating an intermediate

appellate court in Kentucky. In view of Kentucky’s recent

reform of its judicial system, the workload of the Supreme

Court of Kentucky has been substantially reduced, and

certification to that court of the questions raised by this

case would not result in any undue delay.

II. The Court of Appeals’ Disregard of Kentucky’s Cer-

tification Procedure Directly Conflicts With the Estab-

lished Practice Adopted by Other Circuits Under Simi-

lar Circumstances.

Under the established practice in other circuits, Ken-

tucky’s certification procedure would have been utilized

before deciding this case of “first impression under Ken-

tucky’s Workmen’s Compensation Act.” However, the court

of appeals apparently did not even consider certification.

The opinion makes no reference to it and the order denying

the petition for rehearing does not refer to it or indicate

why certification was not used as requested on petition for

rehearing.

The leading exponent of certification has been the Fifth

Cireuit. One of the early cases in which it invoked Florida’s

certification procedure was Green v. American Tobacco Co.,

304 F. 2d.70 (5th Cir. 1962). In that case, a petition for

rehearing was granted to the extent necessary to permit

certification because of the importance of the question and

because one judge had dissented on the original hearing of

the case. The Florida Supreme Court later came to a

different conclusion on the issue certified (154 So. 2d 169

(Fla. 1963)), and the Fifth Cireuit observed that it had

been saved “from committing a serious error as to the law

of Florida which might have resulted in a grave miscar-

riage of justice.” Green v. American Tobacco Co., 325 F. 2d

673, 674 (Sth Cir. 1963), cert. denied, 377 U.S. 948 (1964),

on appeal after retrial, 391 F. 2d 97 (5th Cir. 1968), rev'd

on rehearing en bane, 409 F. 2d 1166 (Sth Cir. 1969).

The certification procedure has since been utilized by the

Fifth Cireuit on a wide range of issues including the fol-

lowing: application of the doctrine of strict liability in

tort’; tolling of statute of limitations'; proper interpreta-

8Wansor v. George Hantscho Co., Inc., 570 F. 2d 1202 (5th Cir.

1978), certification order, 580 F. 2d 726 (5th Cir, 1978), cert.

denied, 99 S. Ct. 350 (1978) (Georgia law); West v. Caterpillar

Tractor Co., Inc., 504 F. 2d 967 (5th Cir, 1974), on certification,

336 So. 2d 80 (Fla. 1976), on receipt of answers following certifi-

cation, 547 F. 2d 885 (Sth Cir. 1977) (Florida law).

4Nardone v. Reynolds, 508 F. 2d 660 (5th Cir. 1975), on cer-

tification, 333 So. 2d 25 (Fla. 1976), on receipt of answers following

certification, 588 F. 2d 1131 (Sth Cir. 1976) (Florida law).

tion of insurance policies®; effect under state law of com-

mercial and real estate transactions®; legality of prices

charged by wholesaler under state’s regulatory scheme for

alcoholic beverages’; exemption from state ad valorem

taxation*; recovery for mental anguish, humiliation, and

embarrassment based upon breach of insurance contract? ;

validity and enforceability of surety bonds'’; mother’s con-

tributory negligence as barring father’s right to sue for his

child’s wrongful death"; and application by Florida court

of an Illinois monetary limitation on damages recoverable

for wrongful death of a Florida citizen in Illinois.'2

The Fifth Cireuit has frequently used certification to

resolve questions relating to the proper interpretation of

*Aetna Casualty & Surety Co. v. Hertz Corp., 573 F. 2d 306

(5th Cir. 1978) (Louisiana law) ; Tyler v. Insurance Company of

North America, Inc., 520 F. 2d 341 (5th Cir. 1975), on certifica-

tion, 331 So. 2d 641 (Ala. 1976), on receipt of answers following

certification, 539 F. 2d 1072 (5th Cir. 1976) (Alabama law).

®In Re McClintock, 558 F. 2d 732 (5th Cir. 1977), on certifica-

tion, 241 S. E. 2d 831 (Ga. 1978), on receipt of answers following

certification, 571 F. 2d 317 (5th Cir. 1978) (Georgia law) ; United

States v. 16.33 Acres of Land in County of Dade, Florida, 537 F. 2d

182 (5th Cir. 1976), on certification, 342 So. 2d 476 (Fla. 1977),

on receipt of answers following certification, 551 F. 2d 678 (5th Cir.

-1977) (Florida law).

TCastlewood International Corp. v. Simon, 564 F. 2d 695 (5th

Cir. 1977) (Florida law).

8Matters of Cedars of Lebanon Hospital Corp., Inc., 546 F. 2d

63 (5th Cir. 1977), on certification, 355 So. 2d 1202 (Fla. 1978),

on receipt of answers following certification, 574 F. 2d 1323 (5th

Cir. 1978) (Florida law).

*Ward v. State Farm Mutual Automobile Insurance Co., 539 F.

2d 1044 (5th Cir. 1976) (Louisiana law).

10Cincinnati Insurance Co. v. City of Talladega, Alabama, 529

F. 2d 718 (5th Cir. 1976), on certification, 342 So. 2d 331 (Ala.

1977), on receipt of answers following certification, 552 F. 2d 128

(5th Cir. 1977) (Alabama law).

11Martinez v. Rodriquez, 394 F. 2d 156 (Sth Cir. 1968), on cer-

tification, 215 So. 2d 305 (Fla. 1968), on receipt of answers follow-

ing certification, 410 F. 2d 729 (5th Cir. 1969) (Florida law).

12Hopkins v. Lockheed Aircraft Corp., 358 F. 2d 347 (5th Cir.

1966), on certification, 201 So. 2d 743 (Fla. 1967), on receipt of

answers following certification, 394 F. 2d 656 (5th Cir. 1968)

(Florida law).

workmen’s compensation statutes. For example, in Blan-

chard v. Engine & Gas Compressor Services, Inc., 575 F. 2d

1140 (5th Cir. 1978), certification order, 590 F. 2d 594 (5th

Cir. 1979), the Fifth Cireuit, referring to the certification

procedure as an important device of federalism, has re-

quested the Louisiana Supreme Court to determine the

meaning of a statutory employee under Louisiana’s work-

men’s compensation statute.

At issue in Allen v. Estate of Carman, 446 F. 2d 1276

(5th Cir. 1971), on certification, 281 So, 2d 317 (Fla. 1973),

on receipt of answers following certification, 486 F. 2d 490

(5th Cir. 1973), was whether the defendant employer could

invoke the exclusive remedy provision of Florida’s work-

men’s compensation statute to bar maintenance of the

common law action. In certifying that issue the court

stated that it deferred to the state court because “assess-

ments of legislative policies underlying the statute are in-

volved here, and because such matters are peculiarly within

the competence of State courts * * *” 446 F. 2d at 1277.

In Trail Builders Supply Co. v. Reagan, 409 F. 2d

1059 (5th Cir. 1969), certification order, 410 F. 2d 763 (Sth

Cir. 1969), on certification, 235 So. 2d 482 (Fla. 1970), on

receipt of answers following certification, 430 F, 2d 828 (5th

Cir. 1970), the question was whether an employer may be

liable for indemnity to a third party who has been sued by

the injured employee where the negligence of the employer

who has paid workmen’s compensation is alleged to be

primary. That question was certified to the Florida Su-

preme Court because there were “no guidelines under

existing Florida jurisprudence to assist us in making a

determination, and since our interpretation of the exclusive

remedy provision of the Florida Workmen’s Compensation

Act would have a significant state-wide impact.” 409 IF. 2d

at 1061.

ere

In addition to the Fifth Cireuit, other cireuit courts of

appeals have utilized available state certification proce-

dures. For example, Walko Corp. v. Burger Chef Sys-

tems, Inc., 554 F. 2d 1165 (D.C. Cir. 1977), on certifica-

tion, 378 A. 2d 1100 (Md. 1977), on receipt of answers fol-

lowing certification, 568 F. 2d 1389 (D.C. Cir. 1977), certi-

fied to the Court of Appeals of Maryland whether the pend-

ency of an unsuccessful motion to intervene tolled the run-

ning of the statute of limitations. The court there observed

that fortunately Maryland had enacted the Uniform Cer-

tification of Questions of Law Act and that “by utilizing it

we may avoid the hazards inherent in any attempt to fore-

cast how the Maryland courts might rule by the simple ex-

pedient of affording the Maryland Court of Appeals an

opportunity to address the question.” 554 F. 2d at 1173.

Bellotte v. Zayre Corp., 531 F. 2d 1100 (1st Cir. 1976),

on certification, 352 A. 2d 723 (N. H. 1976), certified to the

Supreme Court of New Hampshire whether the term “un-

reasonably dangerous” as applied in 1 products liability

case had reference to the child user rather than to the pur-

chasing parent. Earlier, the First Cireuit had invoked

Rhode Island’s certification procedure, D’ Ambra v. United

States, 518 F. 2d 275 (1st Cir. 1975), on certification, 338

A. 2d 524 (R.I. 1975) (right of mother who witnessed child’s

death to sue for negligent infliction of emotional distress),

and Maine’s certification procedure, Hiram Ricker & Sons

v. Students International Meditation Society, 501 F. 2d 550

(1st Cir. 1974), on certification, 342 A. 2d 262 (Me. 1975)

(failure te comply with Maine licensing statute as bar to

recovery based upon the performance of services for which

licenses were required).

A situation analogous to that presented here arose in

Gabhart v. Gabhart, 545 F. 2d 877 (7th Cir. 1977), on cer-

tification, 370 N. E. 2d 345 (Ind. 1977). Stating tat there

existed “important questions of first impression under In-

diana corporation law,” the Seventh Cireuit certified the

question whether a minority shareholder’s only right in a

merger is to the fair value of his shares if the only purpose

is to squeeze him out. That issue was regarded as “an im-

portant question requiring interpretation of state statutes

and state corporation policy which, in view of the eertifica-

tion procedure made available to us by Rule 15(N) of the

Indiana Supreme Court should be answered by that court

as the authoritative and final arbiter of state law.” 545 F.

2d at 881.

Oklahoma’s certification procedure was utilized by the

Tenth Cireuit in Arutsinger v. Mead Foods, Inc., 546 F. 2d

328 (10th Cir. 1976), on certification, 560 P. 2d 195 (Okla.

1977), an action alleging price maintenance in violation of

the anti-trust laws. At issue was whether under Oklahoma

law a price maintenance contract had to be a formal written

agreement to be entitled to the exemption from the anti-

trust laws granted by the Miller-Tydings Amendment to

the Sherman Act in the case of price maintenance contracts

authorized under state law. Because the state of the law in

Oklahoma and nationally was far from definitive, the court

certified that question to the Oklahoma Supreme Court."

The present case raises important issues of state law

having a substantial impact beyond this case which are of

particular significance to Kentucky because they involve

18The Uniform Certification of Questions of Law Act, upon

which Kentucky's certification procedure was based, was approved

by the National Conference of Commissioners of Uniform State

Laws and the American Bar Association in 1967. 12 U.L.A., Uni-

form Certification of Questions of Law Act, p. 49 (1975). The Act

has also been adopted by Colorado, Florida, Maine, Maryland,

Massachusetts, Minnesota, New Hampshire, North Dakota, Okla-

homa. Rhode Island, Washington, and West Virginia. Id. 1979

Supplement, p. 11. From the foregoing cases it can be seen that

certification procedures have also been adopted in Alabama, Louisi-

ana, Georgia, and Indiana.

sensitive policy choices to be made by Kentucky affecting

the administration of its workmen’s compensation law.

Many other circuit courts of appeals undoubtedly would

have certified these issues to the Supreme Court of Ken-

tucky had this case arisen there. The conflicting views

with respect to this important policy of federal judicial ad-

ministration inherent in the failure of the court of appeals

to invoke certification is a matter peculiarly appropriate

for resolution by this Court.

III. The Court of Appeals Erroneously Determined an Im-

portant Question of State Law Under Kentucky’s

Workmen’s Compensation Act in Violation of the

Duty Imposed Upon It by Erie R. Co. v. Tompkins

304 U. S. 64 (1938).

Obedient to its duty under Erie R. Co. v. Tompkins, 304

U. S. 64 (1988), the district court in this diversity case

recognized that it could reach only the result which would

be reached if the matter were before the Kentucky courts

and that Frie precluded it “from altering the expressed

policy determinations of the applicable state court of last

resort” (App., 21a). The court of appeals, on the other

hand, disregarded those restrictions imposed upon it by

Erie which the district court had so carefully observed.

We, of course, recognize that this Court generally is

“hesitant to overrule decisions by federal courts skilled in

the law of particular states unless their conclusions are

shown to be unreasonable.” United States v. Durham Lum-

ber Co., 363 U. S. 522, 527 (1960). Deference is given the

interpretation placed upon purely local law by federal

judges of long experience in the jurisprudence of the state

whose law is applied. MacGregor v. State Mutual Co., 315

U.S. 280 (1942) ; Helvering v. Stuart, 317 U. S. 154 (1942),

as modified, 317 U. S. 602 (1942). As was stated on direct

appeal in Thompson v. Consolidated Gas Co., 300 U. 8. 55

(1937), this Court is disposed to accept the construction

given a state statute by a lower court “particularly when

that court is composed * * * wholly of citizens of the

state, familiar with the history of the statute, the local con-

ditions to which it applies, and the character of the State’s

laws.” 300 U.S. at 74-5.

We submit, however, that the normal deference given to

an interpretation of state law by the lower federal courts is

not due the majority opinion. The only judge who con-

sidered this case having a background in Kentucky law was

the district judge. The two judges who composed the ma-

jority in the court of appeals had no particular expertise in

the issues of Kentucky law raised here but nevertheless

seemingly gave no weight whatsoever to the district judge’s

view of Kentucky law. In fact, the author of the majority

opinion is the newest member of the court of appeals, hav-

ing been appointed October 31, 1977, from a state other than

Kentucky. The concurring judge is a senior circuit judge

from a state other than Kentucky. That no particular

deference should be accorded the majority opinion under

these circumstances is especially so since the federal judges

who considered the case were evenly divided as to the

proper interpretation of Kentucky’s Workmen’s Compensa-

tion Act.

More importantly, however, examination of the majority

opinion discloses that the court of appeals was clearly

wrong in at least three major respects in its interpretation

and application of Kentucky law. First, the majority opin-

ion erroneously concludes that courts liberally construe the

coverage provisions of workmen’s compensation acts but

narrowly construe the immunity provisions (App., 6a, 7a).

The universally accepted rule is that workmen’s compen-

MN cin

sation statutes are to be liberally construed regardless

of whether the injured party seeks to invoke the protection

of those statutes or to deny coverage. The rule was cogently

set forth in Adams v. Ford Motor Co., 573 F. 2d 1182 (10th

Cir. 1978) :

Auother rule of construction here pertinent is that

the Workmen’s Compensation Act is to be liberally con-

strued. The rule of liberal construction is most fre-

quently invoked by employees who have suffered injury

and are seeking their remedy under the Act. But no

different rule of construction can be adopted where an

injured workman for reasons which he regards suffi-

cient seeks a remedy outside the Compensation Act.

573 F. 2d at 1185.

Similarly, in Adamson v. Okland Construction Co., 508

P, 2d 805 (Utah 1973), the court states the rule:

Fundamental standards of justice dictate that it

would be inconsistent to apply the act liberally in favor

of the injured workman in order to find coverage by

one employer on a project, and then to reverse that

policy and adopt a restrictive view to exclude coverage

of another employer on the project so that a suit could

be maintained against him.

508 P. 2d at 807."

As a corollary, it is also uniformly held that one who is

liable for workmen’s compensation benefits is not liable in

“Among the other decisions adhering to this principle are

Cole v. Chevron Chemical Company—Oronite Division, 477 ¥. 2d

361, 365 (5th Cir. 1973), cert. denied, 414 U. S. 858, 978 (1973) ;

Arnold v. Shell Oil Co., 419 F. 2d 43, 47 (5th Cir. 1969) ; Jackson

v. Southern Pacific Co., 285 F. Supp. 388, 389 (D. Nev. 1968) ;

Woods v. Cessna Aircraft Co., 553 P. 2d 900, 902-03 (Kan. 1976) ;

Stubbs v. Green Brothers Gravel Co., 206 So. 2d 323, 325 (Miss.

1968) ; Rutherford vy. Modern Transportation Co., 320 A. 2d 522,

525-26 (N.J. Super. L. Div. 1974). Sce 101 C.J.S. Workmen’s

Compensation § 918 (1958).

tort. The quid pro quo for compensation liability is im-

munity from suit in tort. For example, in Renfroe v. Hig-

gins Rack Coating & Manufacturing Co., 169 N. W. 2d

326 (Mich. App. 1969), it is stated at pages 328-29: “Con-

sequently, our inquiry must be whether the facts of this

case would make defendant Higgins Co. liable to pay work-

men’s compensation benefits under the act. If the answer

is yes, we must affirm the summary judgment denying the

separate tort claim.”

In Liles v. Riblet Products of Louisiana, Inc., 363 F.

Supp. 358 (W.D. La. 1973), af’d, 509 F. 2d 804 (5th Cir.

1975), the court states:

If plaintiff w king to hold defendants liable

here for workmen npensation under the provisions

of § 1061, it is clear u. would sueceed * * * Under

the jurisprudence of Louisiana, the mere fact that de-

fendants are asserting this protection under its Com-

pensation Act in order to obtain immunity from plain-

tiff’s tort action cannot effect a different result here.

363 F. Supp. at 365. See also Woods v. Cessna Aircraft

Co.. 553 P. 2d 900 (Kan. 1976) ; Coco v. Winston Industries,

330 So. 2d 649 (La. App. 1975), judgment set aside on

other grounds, 341 So. 2d 332 (La. 1976); 2A Larson’s

Workmen’s Compensation Law § 72.20 (1976).

The district court properly determined that application

of the Act should not be approached on any different policy

ground because the “employer”: was asserting coverage,

citing Mahan v. Litton, 321 8. W. 2d 248 (Ky. 1959). There,

a helper employed, paid, and directed by a bottling com-

pany’s route man sued the company for damages in tort,

but the suit was dismissed because the helper’s exclusive

remedy was compensation under the Act. That the district

court correctly analyzed Mahan is amply demonstrated by

the following statements from that opinion;

Wherever the Workmen’s Compensation law is ap-

plicable, the rights and remedies granted or provided

thereby are exclusive with certain exceptions which the

statute makes. Hence, the right to maintain an action

for damages for personal injuries and any correspond-

ing liability of the employer to the employee for negli-

gence of the employer, directly or under the doctrine of

respondeat superior, are extinguished, and no common

law action can be maintained to recover damages.

iad * -

The question of the relationship of employer and

employee has usually arisen in respect of liability or

non-liability for tort and in claims for workmen’s com-

pensation. The test in the two categories is substan-

tially the same. If there is any difference, it lies in the

attitude of greater liberality in workmen’s compensa-

tion cases to hold the relationship to exist than in eases

of vicarious liability for tort.

* * *

In connection with these two aspects of the question

of whether the plaintiff in this action is precluded

from maintaining a common law action for damages,

the appellant company submits analogous suppositious

cases. It submits that if Litton, while carrying a heavy

case of the beverage from the truck to the customer,

had dropped it on his own foot, he would clearly have

had the right to workmen’s compensation; and the fact

that he was receiving a part of the per-case payment

to Mahan, the driver-salesman, would not have deprived

him thereof. * * * The other illustrative case is that

if Litton had dropped the case of bottles on the foot of

a customer of the store into which he was carrying it,

the company would be liable for his negligence. * * *

We regard the analogies as apt. The same law and

principle must be applied to the condition and cireum-

stances of the case at bar.

321 S. W. 2d at 245-46,

That the majority labored under a total misapprehen-

sion as to the applicable Kentucky law is well illustrated by

its treatment of and misleading quotation from the Mahan

ease in footnote six of the majority opinion (App., 7a).

The majority simply ignores the effect of that decision and,

in the process, places Kentucky in the position of being a

minority of one, resting its entire decision on an unsound

and unsupportable premise. The other decisions cited by

the majority in footnote six of its opinion do not hold that

the rule favoring coverage is inapplicable when immunity

is the issue. Those decisions were decided under the Act as

it existed prior to the extensive 1972 amendments and

merely recognize that immunity should not be extended

where to do so would violate the plain meaning of the Act.

The second major error in the majority’s interpretation

of Kentucky law is its conclusion that there was no con-

tract between Petitioner and Scotia within the meaning of

KRS 342.610 (notwithstanding that the district court found

such a contract to exist). In so holding, the majority opin-

ion totally disregards applicable Kentucky law and com-

pletely misreads the decision of the Kentucky Supreme

Court in Elkhorn-Hazard Coal Land Corp. v. Taylor, 539

S. W. 2d 101 (Ky. 1976). Elkhorn-Hazard has been dis-

cussed in detail at pages 21-2 of this Petition, and we will

not repeat that analysis here.

As is also more fully discussed at pages 23-5 of this

Petition, the majority opinion does not even refer to the

decision of Kentueky’s intermediate appellate court in

Upper Elkhorn Coal Co. v. Thornberry, 564 S. W. 2d 842

(Ky. App. 1977) (discretionary review denied by Ken-

tucky Supreme Court on May 16, 1978), although the ra-

tionale of that ease is determinative of the present case.

Nor does the majority opinion refer to the decision of the

Supreme Court of Kentucky in United Engineers and Con-

structors, Inc. v. Branham, 550 8. W. 2d 540 (Ky. 1977),

which is most instructive as to what would be the atti-

tude of the Kentucky court if faced with the issues pre-

sented here.

The third point upon which the majority opinion is

clearly wrong lies in its conclusion that Petitioner was not

an “employer” under the Act. In so deciding, the majority

for the second time in its opinion adopts a double standard.

In holding KRS 342.610 inapplicable, Petitioner and Scotia

are said to be too close to contract notwithstanding the

finding of the district court that a contract existed between

them. However, on the question whether the relationship

is such as to render Petitioner an “employer” within the

meaning of the Act, the majority opinion completely ignores

that reasoning and holds that they are too far apart. There

is nothing in Kentucky law to indicate that Kentucky would

adopt such an inconsistent and illogical line of reasoning.

Poyner v. Lear Siegler, Inc., 542 F. 2d 955 (6th Cir.

1976), cert. denied, 430 U. S. 969 (1977), is cited by the

majority on this point. That case involved a shareholder’s

liability for corporate debts as applied in the parent-

subsidiary context. The majority opinion cites no Ken-

tucky case indicating that Keutucky’s attitude toward dis-

regarding corporate entities for financial responsibility

reasons applies with the same force in the workmen’s com-

pensation field. Cases from other jurisdictions recognize

that in applying remedial legislation different considera-

tions are involved than in the case of a common law action

seeking to hold a shareholder liable for corporate torts or

debts.

As was pointed out in Eagle Star Insurance Co. v.

Deal, 474 F. 2d 1216, 1219 (8th Cir. 1973), the considera-

tions pertinent to “piercing the corporate veil” for financial

responsibility reasons and those relevant to determining

the employment relationship “are not identical and they are

weighted differently in light of the distinct purposes to be

resolved.” In United States v. Davison Fuel and Dock Co.,

371 F. 2d 705 (4th Cir. 1967), an action to compel payment

of wages to coal miners, the defendant, which had con-

tracted to supply the coal but which operated no coal

mines directly, and its wholly owned subsidiaries which

operated the mines were held to be an integrated produc-

tion structure for the purpose of enforcing the Walsh-

Healey Act. Affiliated corporations having the same offi-

cers, business, and operating procedures or dividing re-

sponsibilities in operating a business have been held to

constitute a single employer for purposes of enforcing the

National Labor Relations Act. N.L.R.B. v. Patterson Men-

haden Corp., 389 F. 2d 701 (Sth Cir. 196$); N.L.R.B. v.

Gass, 377 F. 2d 488 (1st Cir. 1967). See Seltzer v. Isaac-

son, 371 A. 2d 304 (N.J. Sup. Ct. 1977) (employee limited

to one recovery where a unitary employer-entity exists in

substance, whether or not technically).

Moreover, the majority opinion acknowledges that Scotia

performed mining work for Petitioner. That being true,

and assuming that Petitioner and Scotia are separate en-

tities and that KRS 342.610 does not apply, then Scotia had

to be acting as agent or servant for Petitioner. The ma-

jority in fact cites section 213 of the Restatement (Second)

of Agency in concluding that Petitioner should be liable for

harm resulting from its own negligent or reckless conduct

(App., 15a). That section governs the liability of a prin-

cipal conducting an activity through servants or other

agents. Under Kentucky law, the employees of the servant

or agent become the employees of the master or principal

and cannot maintain a common law action for injuries

arising out of their employment. King v. Shelby Rural

' aa 49

» or of

Electric Cooperative Corp., 502 S. W. 2d 659 (Ky. 1973),

cert. denied, 417 U. S. 9382 (1974); Mahan v. Litton, 321

S. W. 2d 243 (Ky. 1959). See KRS 342.640.

CONCLUSION

For all of the reasons set forth herein, the petition for

a writ of certiorari should be granted and the judgment of

the Court of Appeals for the Sixth Circuit reversed.

Respectfully submitted,

Bert T. Comss

CuHarues R. Srmons

Rosert I. Cusick, Jr.

Tarrant, Comps & BuLuitr

2600 Citizens Plaza

Louisville, Kentucky 40202

Foster D. ARNETT

Arnett, Draper & Hacoop

1212 United American Bank Building

Knoxville, Tennessee 37902

L. R. Couture, Jr.

Hvuperns, CouLttinc, Brewster & Mornous

Box 529, 323 Law & Commerce Building

Bluefield, West Virginia 24701

Maxwetu P. Barrer

Crart, Bankut, Haynes & Warp

Combs Building

Hazard, Kentucky ' 41701

Henry STRATTON

Marrs ALLEN May

Srratron, May & Hays

P. O. Box 851

Pikeville, Kentucky 41501

Counsel for Petitioner

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

| No. 77-1724

’

JENNIFER Boaes, Caro. Comss, GERALDINE

Coots, Vera Gattoway, Lippy Gtsss,

| Maponna GrirritH, Diane McKnicut,

Puyuus Peavy, Vickie Scott, CELINDA

SparkMAN, ErxHet Srurciy, Dessie

Turner, Repa Turner, and CHARLOTTE

Wipner, Administratrices of their de-

cedents and individually - Plaintiffs-A ppellants

A P P BE N D I X Buve Diamonp Coat Company - - Defendant-Appellee

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF KENTUCKY

Decided and Filed January 23, 1979

Before: Merritt, Cireuit Judge; Crecn. and Peck,

Senior Circuit Judges.

Merritt, Circuit Judge, delivered the opinion of the

Court, in which Cecri, Senior Circuit Judge, joined. Peck,

Senior Circuit Judge, (pp. 15-16) filed a separate dissent-

ing opinion.

In this diversity case, fifteen widows of coal miners

killed in a mine disaster appeal the District Court’s dis-

missal of their wrongful death action. The miners worked

for a subsidiary corporation owned by the defendant, the

Opinion

parent corporation. Plaintiffs allege acts of negligence of

the parent corporation separate and distinct from the con-

duct of the subsidiary. The case raises serious questions

of first impression under Kentueky’s Workmen’s Compensa-

tion Act.

The Act, like other workmen’s compensation laws, grants

immunity from common law negligence to an “employer”

covered by the Act and to’ “contractors” who provide eer-

tain types of services to an “employer.” The immunity is

given in exchange for the guaranteed insurance benefits

payable to injured employees without regard to fault.!

The principal issue is whether the parent is an “employer”

or “contractor” :mmunized from tort liability under these

provisions,

Finding an implied contract for the subsidiary to mine

coal for the parent, the Distriet Court concluded that the

parent was a “contractor” exempt from tort liability under

Kentucky's Workmen’s Compensation Act. We hold that

the parent should not be characterized as either a “con-

tractor” or an “employer” under the Act. We reverse the

District Court’s judgment and remand the ease for trial.

On March 9, 1976, fifteen coal miners were killed when

methane gas exploded in Scotia Mine No. 1 at Oven Fork in

I1Ky. Rev. Stat. Ann. § 342.690 (1978), the immunity section,

provides:

[T]he liability . . . under this chapter shall be exclusive and

in place of all other liability of such employer to the employee . . .

For purposes of this section, the term “employer” shall include a

“contractor” covered by subsection (2) of KRS 342.610 . . . The

exemption from liability given an employer by this section shall also

extend to such employer’s carrier and to all employes, officers or

directors of such employer or carrier... .

§ 342.610(2) defines “contractor” as:

a person who contracts with another (a) to have work performed

consisting of the removal . . . of . .. minerals ... or (b) to

have work performed of a kind which is a regular . . . part of the

work of the . . . business . . . of such person... .

Opinion

Letcher County, Kentucky. The Scotia Mine is owned and

operated by Scotia Coal Company, a wholly owned sub-

sidiary of Blue Diamond Coal Company, whose offices and

principal place of business are located in Knoxville.

Blue Diamond operates several coal mines and related

businesses. It describes itself ‘in its brief as a multi-unit

enterprise consisting of a group of wholly owned sub-

sidiary corporations controlled by a central holding com-

pany:

Blue Diamond enters into sales contracts based upon

coal to be produced from the mines of its wholly owned

subsidiaries. . . . All coal produced by Scotia is

sold by Blue Diamond and shipped as directed by Blue

Diamond. Sales are invoiced to customers by Blue

Diamond and deposited in its bank accounts. A sale

of coal from Scotia is entered as a credit to Scotia on

the accounting records, but all money is retained by

Blue Diamond and is used as it chooses. Funds

needed to pay expenses at Scotia are furnished by Blue

Diamond with an appropriate entry in the intercom-

pany accounts. (Emphasis added.)

The District Court found that within this corporate ar-

rangement the management of Blue Diamond, the parent,

had the primary responsibility for “mine safety functions”

at the Scotia mine.

Simply stated, the theory of plaintiffs’ case is this:

Blue Diamond provided management, engineering and

safety services to Scotia, including advice and assistance

in mine ventilation. Blue Diamond’s management recog-

nized that improvements in the ventilation of the Scotia

Mine were needed in order to minimize the accumulation

of methane gas but negligently delayed construction of

these improvements. Blue Diamond authorized removal

Opinion

of existing ventilation and safety deviees in order to open

a new tunnel of the mine but concealed the changes from

federal mine inspectors who would have taken immediate

steps to correct the dangerous condition or to close the

mine had they known of the changes. The ventilation

changes increased the methane gas in the existing tunnel

and caused the explosion. Blue Diamond recklessly created

a dangerous situation and put the miners’ lives at risk in

order to increase its profits in a rising market.

The parent corporation moved for summary judgment

claiming immunity from tort under the Kentucky’s Work-

men’s Compensation Act on the ground that the parent and

subsidiary produce coal as part of an integrated business

and should be considered a joint or single “employer.” The

parent argued, in the alternative, that the subsidiary pro-

duces coal for it under an agreement and that the parent

should be considered a “contractor” expressly exempt from

common law liability under the Act.?

At the close of plaintiff's case after three days of testi-

mony before a jury, the parent moved for a directed verdict

and also renewed its motion for summary judgment. The

District Judge sustained its motion for summary judgment.

He concluded that the “undisputed course of conduct” evi-

denced an implied contract “from 1962 to date” for the sub-

sidiary to mine coal for the pareut. The parent, he held,

should be deemed a “contractor” exempt from common law

liability. On this appeal we must decide the extent to

which workmen's compensation laws abrogate the common

law liabilities of a parent corporation or holding company

for injuries to its subsidiary’s employees.

Il.

Workmen’s compensation laws were passed before the

multi-unit enterprise became the norm in the American

2The relevant language of the Act is quoted in note 1, supra.

Pree rn

Opinion

economy and before the accompanying managerial revolu-

tion in American business. See Chandler, The Visible

Hand 377-498 (1977): For this reason, state workmen’s

compensation laws, including Kentucky’s Workmen’s Com-

pensation Act, do not address the question of a parent cor-

poration’s immunity from common law tort liability for

injuries to its subsidiary’s employers, [sic] ner dees the

Kentucky case law interpreting the Aet. Few eases from

other jurisdictions touch upon the question, and the general

legal literature in the field does not deal with it. In the

absence of controlling authority, we look to the language

of the Act, its history and purpose, and the general eon-

cepts underlying workmen’s compensation laws in order to

find a sound approach to the problem.

The dominant purpose of the movement to adopt work-

men’s compensation laws in the early decades of this century

was not to abrogate existing common law remedies for the

protection of workmen. It was to provide social insurance

to compensate vietims of industrial accidents because it was

widely believed that the limited rights of recovery avail-

able under the common law at the turn of the century were

inadequate to protect them.

The so-called “unholy trinity” of judicially-created em-

ployer defenses, assumption of the risk, contributory neg-

ligence and the fellow servant rule, were developed and

stiietly enforced as legal rules in the last half of the

nineteenth century. The result, according to Deans Prosser

and Wade, was recovery in less than a quarter of work-

related accidents, as injured workmen subsidized economic

growth.*

~ 8Prosser & Wade, Cases and Materials on Torts 619 (5th ed. 1971) ;

Prosser, Handbook of the Law of Torts § 80 (1971). See Larson, The

Nature and Origins of Workmen’s Compensation, 37 CorNELL L. Q. 206

(1952). See also Horowitz, The Transformation of American Law 251-

66 (1977); Pound, The Spirit of the Common Law 29-31, 47 (1921).

Opinion

Kmployers generally opposed the movement for “re-

form’; labor generally favored it. Workmen’s compensa-

tion laws were adopted as a compromise between these con-

tending forees. Workmen were willing to exchange a set

of common-law remedies of dubious value for modest work-

men’s compensation benefits schedules designed to keep

the injured workman and his family from destitution.

Since the adoption of workmen’s compensation laws,

common law tort principles have been modified gradually.

Liability has expanded. The defenses of contributory neg-

ligence, assumption of the risk and the fellow servant rule

have been narrowed or abolished. But workmen’s compen-

sation benefits have remained low, and the compromise

which extended immunity from common-law liability to em-

ployers has remained in place.

Congress, responding to rising public consciousness of

the need for occupational safety, has viewed the safety in-

centives provided by existing laws as inadequate. It has

enacted new regulatory arrangements to insure more safety

at mines* and at work places generally.®

Courts have responded by liberally construing the cov-

erage provisions of workmen’s compensation acts while

narrowly construing the immunity provisions. Judge Cele-

brezze, writing for this Court, described the developments

of Kentucky case law in this direction in Bryant v. Old Re-

public Insurance Co., 431 F. 2d 1385 (6th Cir. 1970), a case

which held that an employer’s workmen’s compensation

4Federal Coal Mine Health and Safety Act of 1969, 30 U.S.C. S$§ 801

et seq., as amended by the Federal Mine Safety and Health Act of 1977,

30 U.S.C. $$ 801-78.

SSee the Occupational Safety and Health. Act of 1970, 29 U.S.C.

651-78, including § 27 in which Congress “finds and declares” that “in

recent years serious questions have been raised concerning the fairness

and adequacy of present workmen’s compensation laws in the light of

. . . new risks to health and safety, and increases in the general level

of wages and the cost of living.” 29 U.S.C. § 676.

Opinion

insurance carrier is not an “employer” for purposes of the

tort immunity provisions of the Act:

A review of the Kentucky constitution .. . reveals

that the personal representatives of an estate have a

constitutionally protected right to recover for wrongful

death, “unless otherwise provided by law.” Constitu-

tion of Kentucky § 241 . The General Assembly of

Kentucky subsequently codified this constitutional

right. . . . The Workmen’s Compensation Act is an

express exception to Kentucky’s constitntional and

statutory right... .

[T]he Kentucky Court of Appeals seems to be narrow-

ing the concept of employer’s immunity under its work-

men’s compensation laws and in the absence of any

compelling statutory language or social policy justifi-

cation . . . we believe that Kentucky Courts will pre-

serve that State’s constitutional and statutory right

. . « (Emphasis added.)

431 F, 2d at 1387-88.

Kentucky courts have given the “liberal” construction re-

quired by the express language of the Act by broadly con-

struing the coverage provisions of the Act and narrowly

construing the immunity provisions.*®

Professor Arthur Larson, a leading authority in the

field, justifies this approach for the following reasons:

6See Ky. Rev. Stat. § 342.004 (1978); Bright v. Reynolds Metals Co.,

490 S. W. 2d 474 (Ky. 1973); Peters v. Radcliff Ready Mix, Inc., 412

S. W. 2d 854 (1967); Cove Fork Coal Co. v. Newcomb, 343 S. W. 2d 838

(Ky. 1961); Mahan v. Litton, 321 S W. 2d 243, 245 (Ky. 1959) (case

appears to say that the “test” of the “relationship of employer and

employee” is “substantially the same” under the Act, but courts have

adopted an “attitude of greater liberality in . . . compensation cases

. than in cases . . . for tort’’).

Opinion

[T]here is no strong reason of compensation policy

for destroying common law rights . . . [and] every

presumption should be on the side of preserving those

rights, once basic compensation protection has been

assured . . . . The injured employee has a right to be

made whole — not just partly whole. . . . [AJll the

reasons for making the wrongdoer bear the costs of his

wrongdoings still apply, including the moral rightness

of this result as well as the salutary effect it tends to

have as an incentive to careful conduct and safe work

practices. (Emphasis added.)

2A Larson, The Law of Workmen’s Compensation §| 72.50

at 14-95 (1976).

In light of this history and policy, we agree that “every

presumption should be on the side of preserving” common

law rights in the absence of “compelling statutory language

or social policy justification.” We approach the problem

from this perspective.

II.

1. “Contractor” Immunity.— The District Court con-

cluded that the parent is a “contractor” for the mining

services of its subsidiary and hence immune under the “con-

tractor” provision of the Act. The Act provides that a

“contractor” shall be deemed an “employer” under the Act.

For purposes of this case, a “contractor” is one who (a)

“contracts with another” (b) “to have [mining] work per-

formed.’* There is no question that the subsidiary per-

formed mining work for the parent; the only question is

whether the parent performed the work under a “contract”

with the subsidiary.

In its brief on appeal, Blue Diamond argues first that

there was an “implied contract” between the parties based

7See note 1, supra.

Opinion

upon their conduct; and second, even if there were no con-

tract “in the technical sense” of “a formal, enforceable”

agreement, the contractor provision requires only a “fune-

tional relationship by which one person” mines coal for

another.

In the only case to date defining its scope, Kentucky’s

highest court read the “contractor” provision narrowly,

even for the purpose of determining compensation coverage

under the Act. It held that a mining company employee

could not recover workmen’s compensation from a separate

company that had leased coal land to his employer. Elk-

horn-Hazard Coal Land Corp. v. Taylor, 539 8. W. 2d 101,

103 (Ky. 1976). The court described the contractor pro-

vision as “limited in application,” limited to “persons who

contract with another.” Its legislative purpose was to

“discourage owners and contractors from hiring financially

irresponsible contractors and subcontractors” in order to

avoid coverage under the Act.

This language, as well as the language of the statute

itself, appears to contemplate a regular, enforceable con-

tract between “independent” parties dealing with each other

at arm’s length. Here, there is no formal, integrated agree-

ment, either written or oral. If we view the course of con-

cuet of the parties as creating a “contract implied in fact”

from the conduct of the parties, as did the District Court, it

is unclear what the terms of the contract are, what mutual

promises were made, what consideration was given, what

the duration of the contract is, or what contractual obliga-

tions or expectations were created.

The principle of reciprocity or mutuality of obligation is

the very essence of contract. Here it is missing. As Blue

Diamond says in its brief, “all money is retained by Blue

‘ Diamond and is used as it chooses.” Kentucky couris have

declined to characterize and enforce such arrangements as

10a

Opinion

“contracts” under Kentucky law, finding that they are so

one-sided and unspecific as to be “illusory” and “lacking in

mutuality.” See Baber v. Lay, 305 8. W. 2d 912 (Ky. 1957).

This does not end the matter, however. Blue Diamond

stresses its second point that the Act does not require a

specifie contract “in the technical sense.” It argues that the

parent should be immune as a “contractor” if the realities

of the situation create a “functional relationship” suffi-

ciently like a contractual relationship to come within the

purposes of the Act. :

This argument does not strengthen Blue Diamond's po-

sition. Even if we were willing to stretch the point and

dispense with the need for an actual contract, the relation-

ship between the parties under such a reading of the con-

tractor provision should at least fit within basic contract

theory. Here it does not fit.

Coutract theory either does not recognize, vr charac-

terizes as voidable, arrangements between parties who lack

adequate bargaining power. Restatement of Contracts, °

Chaps. 1-2 (1988). A number of contract doctrines render

ineffective arrangements where one party is subject to

coercion or where there is no real exchange. For example,

contract theory has not viewed the relationship between

parent and’ child as contractual, and children and others

without real bargaining power do not have the capacity to

contract. The doctrines of duress, undue influence and un-

conscionability are based on similar considerations. /d. at

Chaps. 15-18. The doctrine of consideration itself requires

a real exchange between autonomous parties. Jd. at §§ 6,

75-84. The doctrines of fraud and mistake presuppose a

meeting of the minds between real parties with freedom to

deal at arm’s length. Jd. at Chaps. 15, 17. Contract obliga-

tions are enforceable as a matter of “right,” and contract

lla

Opinion

theory is based on the intention of parties who possess the

freedom to agree or disagree.*

These various contract doctrines suggest that the “fune-

tional relationship” between a parent and a subsidiary is

not a contractual relationship. The expectations of the

parties are not based on mutual promises, consideration or

consent, for one party owns and has custody of the other

party. The relationship between parent and subsidiary is

based npon the status of the parties and is more like the

relationship between parent and child, warden and prisoner,

and other similar relationships. The relationship is not

based upon the bargaining power of the parties.

We arrive at the same conclusion if we analyze the

question in terms of the basie theory of corporation law.

The business firm is a method, “alternative to contracting,”

of organizing economic production whereby performance is

predicated upon the control inherent in share ownership

rather than upon the terms of a contract. Posner, Eco-

nomic Analysis of Law 174-89 (1973). The “essence” of the

contract method is that “the entrepeneur negotiates ... an

agreement specifying the price, quantity, quality, due date,

credit terms, ete., of the contractor’s performance.” In the

corporate context, on the other hand, the parent “directs the

performance” of the subordinate units. Jd. at 174.

Consequently, we do not believe that the relationship

here is contractual either in fact or in theory. The parent

should not be characterized as a “contractor” for the mining

services of its wholly owned subsidiary for purposes of the

tort immunity provisions of the Act.

2. Employer's Immunity. — Kentucky courts have not

addressed the question of whether a multi-unit corporate

enterprise should be viewed as a single “employer” for

8See generally, Corbin, Contracts, Chaps. 1, 4, 6 (1963); Kennedy,

Form and Substance in Private Law Adjudication, 89 Harv. L. REv.

1685, 1725-37 (1976).

lla

Opinion

purposes of liability and benefits under the workmen’s

compensation statute. But Kentucky recognizes customary

principles of corporation law which hold that separate cor-

porate identities should not be disregarded. Square D. Co.

v. Kentucky Bd. of Tax Appeals, 415 S. W. 2d 594, 601

(1957). Owners may elect to divide their business into

parent and subsidiary corporations entitled to respect as

separate legal entities in the absence of improper purposes.

To remove that right and the reciprocal obligations it im-

poses would violate general principles of Kentucky law. For

example, in Poyner v. Lear Sielger, [sie] Inc., 542 F. 2d 955

(6th Cir. 1976), the plaintiffs sought to hold a corporation

liable for the obligations of its subsidiary. Applying “the

law as it appears in existing Kentucky decisions,” this court

declined to disregard the corporate fiction, observing that

“the approach of the Kentucky Courts to piercing the cor-

porate veil has been described as evincing ‘a general aver-

sion for any disregard of the corporate entity.” Jd. at 958.

We noted “it would be an unprecedented extension of the

Kentucky doctrine to disregard [the subsidiary’s] separate

corporate existence.” Id. at 961.

Whatever the semantics, it is unusual to find the parent

corporation arguing that the corporate “fiction” should be

disregarded, or that the “corporate veil” should be

“pierced.” The separate artificial corporate personalities

are usually disregarded only when the corporate device is

used to defraud creditors, create a monopoly, circumvent a

statute or for other similar reasons. Berle, The Theory of

Enterprise Entity, 47 Colum. L. Rev. 348 (1947); Fuller,

The Incorporated Individual, 51 Harv. L. Rev. 1373, 1401

(1938).

Under similar facts, other jurisdictions have declined to

disregard the corporate entities at the request of the parent

corporation. In Latham v. Techuar, Inc., 340 F. Supp. 1051

13a

Opinion

(E.D. Tenn. 1974), Judge Taylor held that the administra-

tor of the estate of a deceased employee of a wholly owned

subsidiary could sue the parent for its negligence in causing

the death of the employee. The parent contended that

plaintiff’s sole remedy was workmen’s compensation bene-

fits. The court held, however, that the plaintiff could main-

tain a common law wrongful death action against the parent

as a third party. Similarly, in Oliver v. St. Clair Metal

Products Co., 45 Mich. App. 242, 206 N.E. 2d 444 (1973), an

injured employee sued the parent of his employer corpora-

tion as a third party claiming that negligence by the em-

ployees of the parent had caused his work-related injury.

The court held that the suit could be maintained. Each of

the parent’s plants were separately incorporated as subsi-

diaries. The evidence showed that a management official of

the parent corporation who was in charge of supervising

production at various plants had become aware of the lack

of safety features on a machine operated by plaintiff.°

These cases are based on the traditional view that a

business enterprise has a range of choice in controlling its

own corporate structure. But reciprocal obligations arise

as a result of the choice it makes. The owners may take

advantage of the benefits of dividing the business into

separate corporate parts, but principles of reciprocity re-

quire that courts also recognize the separate identities of

the enterprises when sued by an injured employee. See

Fletcher, Fairness and Utility in Tort Theory, 85 Harv. L.

Rev. 537 (1972).

The increasing concentration of discrete business en-

tities in the hands of holding companies, regional, national

and international, has a more subtle influence on the ques-

*See also Wheeler v. New York, New Hampshire and Hartford

Railroad, 157 A. 159 (Conn, 1931); Foley v. New York City Omnibus

Corp., 112 N.Y.S. 2d 217 (1952); Phillips v. Stowe Mills, Inc., 167 S.E.

i903). (N.C. 1969); Brown v. Morehead Oil Co., 124 S.E. 2d 47 (S.C.

l4a

Opinion

tion raised in these cases. Implicit in these decisions is the

suggestion that the tort system should not deny recovery

in an increasingly concentrated economy to an injured

employee due to the fortuitous circumstance that the tort-

feasor is not a stranger but is controlled by the same busi-

ness enterprise that controls his immediate employer. See

Davis, Workmen’s Compensation — Using an Enterprise

Theory of Employment to Determine Who is a Third Party

Tort-F easor, 32 Pitt. L. Rev. 289, 294 (1971).

We conclude that Blue Diamond should not be allowed to

avoid the consequences of its corporate structure in order

to claim immunity from customary tort liability under

Kentucky’s workmen’s compensation statute. The District

Court properly concluded “that Blue Diamond and Scotia

are separate and distinct corporations” and properly re-

jected Blue Diamond’s argument that the two corporations

should be treated as one.'®

10In the case of Bryant v. Old Republic Insurance Co., discussed at

pages 6-7, supra, the insurance carrier was negligent in failing properly

to carry out its duty to inspect its insured’s coal mine. After the Bryant

decision, the Kentucky legislature amended the Workmen’s Compensation

Act to give the carrier immunity from tort liability as an “employer.”

See note 1, supra, and Ky. Rev. Stat. §§ 342.690(1) 342.620(4) and

342.620(5). In its third alternative argument, Blue Diamond contends

in this case that it is also a “carrier” under these provisions and there-

fore exempt from tort liability because it acts jointly with Scotia as a

self-insuror for that portion of their workmen’s compensation obligation

which they do not insure through insurance companies. This argument

fails because the definitions of “carrier” and “self-insuror” exempt a

self-insuror from tort liability only in connection with his own employees,

K.R.S. § 342.620(5), and we have, held that Blue Diamond is not an

“employer” of Scotia’s miners for purposes of the Act. Moreover, the

negligence alleged against Blue Diamond did not arise from conduct or

duties undertaken by Blue Diamond in its capacity as a workmen’s com-

pensation insurance carrier. Blue Diamond’s fourth alternative argu-

ment that it should be exempt from common law liability because it is

engaged in a “joint venture” with Scotia is also without merit for the

reasons set forth in Judge Sneed’s opinion in House v. Mine Safety Ap-

pliences Co., 573 F. 2d 609, 619-21 (9th Cir. 1978). We do not reach

Blue Diamond’s fifth alternative argument that plaintiffs failed to es-

tablish the proximate cause of the explosion, and that the District Court

should have granted Blue Diamond’s motion for directed verdict on these

grounds at the end of plaintiff’s proof. The District Court has not ruled

on this question, and we do not believe consideration of this question at

this time is proper.

l5a

Opinion

For these reasons, we conclude that under Kentucky’s

Workmen’s Compensation Act a parent is not immune from

tort liability to its subsidiary employees for its own, inde-

pendent acts of negligence. The parent should be liable

under customary principles of the common law for harm

resulting from its own negligent or reckless conduct. See

Restatement (Second) of Agency § 213 (1958).

This is not derivative liability. The parent is not liable

under the doctrine of respondeat superior for the negli-

gence of the subsidiary. Jd. at § 217. For purposes of the

doctrine of respondeat superior, a subsidiary which pro-

vides workmen’s compensation should be treated as having

terminated the derivative liability of its parent or principal

by satisfaction of the claim. Id. at §§ 185, 217. But neither

these rules of ageney nor the workmen’s compensation law

insulate the parent from tort liability for its independent

acts of negligence which cause injury to its subsidiary’s em-

ployees.

Accordingly, the judgment of the District Court is re-

versed and the case is remanded for trial.

Peck, Senior Cireuit Judge, dissenting. Most respect-

fully, I feel required to dissent from the majority opinion

in what is to me a particularly disturbing case.

As a point of departure, I am not in disagreement with

the conclusion expressed in the majority opinion to the

effect that the coverage provisions of Workmen’s Compen-

sation acts should be liberally ec.ustrued, but that their

immunity provisions should be narrowly construed. See,

Bryant v. Old Republic Insurance Co., 431 F. 2d 1385 (6th

Cir. 1970). However, I have definite reservations concern-

ing the majority’s finding support for such construction in

what it concludes to be the inadequacy of the dollar com-

pensation paid under the requirements of the Kentucky

l6a

Opinion

Act. Any such inadequacy as may exist must be the subject

of legislative, not judicial, readjustment. And with all due

respect, I do not find the scholarly writings of experts in

the field persuasive, and in any event not controlling, in the

light of the fact that the fundamental philosophy of Work-

men’s Compensation acts is that remuneration be provided

on a no-fault basis in return for employers’ immunity from

common law liability.

My concern arises from the fact that in a long and

thoughtful Memorandum Opinion, Judge Hermansdorfer

correctly stated the factual prerequisites for a finding of

immunity under the Act, and went on to find that each was

satisfied under the circumstances of this ease. I can find no

reason to hold the following finding of fact made by Judge

Hermansdorfer clearly erroneous: “The undisputed course

of conduct between Blue Diamond and Scotia, considered as

contracting parties, is clear. The intent of the parties as to

their respective functions in the Oven Fork, Kentucky min-

ing operation and the consideration to be exchanged be-

tween them are beyond doubt. I find a contract to exist

between the parties from 1962 to date.” It seems to me to

be no accident that Judge Hermansdorfer used the word

“find,” since it appears clear that the requisite determina-

tions constitute findings of fact. The question of the exis-

tence of an implied contract is certainly the sort of issue

which, in an appropriate case, would be submitted to a jury.

The majority opinion proceeds through the litany of the

requirements of a formal contract, and without difficulty

demonstrates that they are not all te be found in the cireum-

stances giving rise to the present litigation. However, it is

clear that no such formal contract is required in order to

provide immunity. For example, in Upper Elkhorn Coal

Co. v. Thornberry, Ky. App., 564 S. W. 2d 843 (1977), the

Coal Company was being sued for Workmen’s Compensa-

l7a

Opinion

tion benefits. The Company argued that it was not a con-

tractor under the Act, and thus not liable for benefits. A

partnership owned the lease for the coal fields, and had

contracted with the decedent’s employer to produce coal and

deliver it to Upper Elkhorn. Despite the fact that there

was no contract at all with Upper Elkhorn, mneh less a

“formal” one, the court held that the company was liable

for benefits under the Act as a “contractor” because the two

partners were acting for the benefit of Upper Elkhorn. It

noted that the purpose of the arrangement was to secure

production for Elkhorn, and that the benefit of all coal pro-

duction fell to Upper Elkhorn. Similarly, in this ease,

there may not be a formal contract, but there ‘s certainly

an “arrangement,” through which Blue Diamond obtains

the benefit of the production of coal. It is worth emphasiz-

ing, too, that the majority’s decision means that a parent

company cannot be held liable for Workmen’s Compensa-

tion benefits owed to the employees of its subsidiary. While

that result may be attractive in the present ease, in the long

run such a conclusion may well have more unfortunate than

beneficial effects.

I would affirm the judgment of the district court.

18a

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

No. 77-1724

JENNIFER Bocas, Caro Comss, GERALDINE

Coots, Vera GaLLoway, Lipsy Gisss,

Maponna Grirriru, Diane McKynicurt,

Puy.uis Peavy, Vickte Scorr, CeLInpa

SpaRKMAN, Ernent Sruromy, Depsie

Turner, Repa Turner, and CHARLOTTE

Wipner, Administratrices of the de-

cedents and individually, - Plaintiff s-A ppellants,

Buve DiamMonp Coat Company, - Defendant-Appellee.

Before: Merritt, Circuit Judge; Cecit and Peck, Senior

Circuit Judges.

JUDGMENT—Filed January 23, 1979

AppreaL from the United States District Court for the

Eastern District of Kentucky.

Tuts Cause came on to be heard on the record from the

United States District Court for the Eastern District of

Kentucky and was argued by counsel.

On ConsiperaTION Wuereor, It is now here ordered and

adjudged by this Court that the judgment of the said Dis-

trict Court in this cause be and the same is hereby reversed

and the cause remanded for trial.

It is further ordered that Plaintiffs-Appellants recover

from Defendant-Appellee the costs on appeal, as itemized

below, and that execution therefor issue out of said District

Court if necessary.

ENTERED BY ORDER OF THE Court.

(s) John P. Hehman, Clerk

19a

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

No. 77-1724

JENNIFER Boaas, et al., - - Plaintiffs-Appellants

Buve Diamonp Coat Company - Defendant-A ppellee

ORDER—Filed March 9, 1979

Before: MerriTT, Circuit Judge; Cecm and Peck, Senior

Cireuit Judges.

A majority of the Court having not voted in favor of

an en banc rehearing, the petition for rehearing has been

referred to the hearing panel for disposition.

Upon consideration, it is OrpERED that the petition for

rehearing be and hereby is denied.

EwntereD By Orper or THE CouRT

(s) John P. Hehman, Clerk

20a

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF KENTUCKY

PIKEVILLE

Civil Action No. 77-69

JENNIFER Bocas, Individually and as Adminis-

tratrix of the Estate of Dennis Clay Boggs,

Et Al. - - - - - - - Plaintiffs

Buve Diamonp Coat CoMPany - - - Defendant

MEMORANDUM OPINION—Filed September 21, 1977

This case involves a common law tort action for wrong-

ful deaths brought by the widows as personal representa-

tives of the estates of the fifteen coal miners who lost their

lives in the Scotia mine disaster at Oven Fork, Kentucky

on March 9, 1976. The deceased coal miners were em-

ployees of the Scotia Coal Company [Scotia], a wholly

owned subsidiary of the defendant Blue Diamond Coal

Company [Blue Diamond].

Jurisdiction is found under 28 U.S.C. §1332(a).

After plaintiffs filed their complaint and before trial,

Blue Diamond filed a motion for summary judgment under

Rule 56, F.R.C.P. The issue was extensively briefed but

was not argued until after the close of plaintiffs case in

chief in the tort action. The deferral of consideration was

based in part, upon the teaching of Kennedy v. Silas Mason

Co., 334 U. S. 249, 256-257 (1948). Upon the conclusion of

plaintiffs’ evidence before the jury and after lengthy argu-

ment I determined that an adequate record on the summary

21a

Memorandum Opinion

judgment motion was present for judicial review. Upon a

consideration of the matters filed in support of the motion

for summary judgment and opposing it, the pleadings and

the plaintiffs’ evidence, I orally granted defendant’s motion

on September 12, 1977.

This Memorandum Opinion will address the reasons for

the granting of summary judgment in this case which,

generally, cluster around two statutory provisions of the

Kentucky Workmen’s Compensation Act [Act] upon un-

disputed facts. I notice that during the argument neither

side suggested there was an issue as to any material fact,

and each party recognized in argument the consequences of

the application of Kentucky Revised Statutes [KRS]

342.610(1) and 342.690. Each side argued upon the facts

that it was entitled to the application of the two cited

statutory sections. For plaintiff the legal result would be

that Scotia was a contractor and Blue Diamond was a sub-

contractor and amenable to a tort action; for the defend-

ant once contractor status under Section 342.610(2) would

be attained the litigation would terminate since KRS 342.-

690 makes exalusive to plaintiffs the remedies of the com-

pensation act.

Under Erie Railroad Co. v. Tompkins, 304 U. S. 64

(1938), this Court is authorized to reach only that result

which would be forthcoming if the matter were tried in the

- Kentucky courts. The limitation of rie proscribes federal

courts from altering the expressed policy determinations of

the applicable state court of last resort. Although there

are appealing aspects to this case which, if presented to the

Kentucky Supreme Court, might have prompted it to re-

consider its announced views on the application of the

Kentucky compensation law, such discretion belongs to the

state’s highest court and not to this Court.

22a

Memorandum Opinion

I. Kentucky Workmen’s Compensation Act

The Act was repealed by the Kentucky Legislature in

1972 and replaced with a revised Act [S. 184, 1972, eff.

1-1-73] which contains new provisions material to this ac-

tion. In Fields v. Twin City Drive-In, Ky., 534 8. W. 2d

457, 458 (1976), the need to consider the new legislation in

terms of the old was recognized.

This ease is not a typical workmen’s compensation

action in which a person seeks to avoid liability under the

Act to one claiming to be his employee, but rather pre-

sents the converse situation in which a person seeks to

come within the ambit of the Act in the equivalent position

of an employer and to benefit from the limitation of the

Act’s liability provisions.

Plaintiffs insist and defendant has agreed arguendo

that Blue Diamond and Scotia are separate and distinct

corporations. I am bound to accept this fact as true. Each

party may assert it is entitled to the application of KRS

342.610(2).

The relevant portions of the texts of KRS 342.610(2)

and KRS 342.690 provide:

“349.610. Liability for compensation.

“(1) Every employer subject to this chapter shall

be liable for compensation for injury, occupational

disease, or death without regard to fault as a cause of

the injury, occupational disease, or death.

“(2) A contractor who subcontracts all or any part

of a contract and his carrier shall be liable for the

payment of compensation to the employes of the sub-

contractor unless the subcontractor primarily liable for

‘the payment of such compensation has secured the

payment of compensation as provided for in this chap-

ter. Any contractor or his carrier who shall become

23a

Memorandum Opinion

liable for such compensation may recover the amount

of such compensation paid and necessary expenses

from the subcontractor primarily liable therefor. A

person who contracts with another (a) to have work

performed consisting of the removal, excavation or

drilling of soil, rock or mineral, or the cutting or re-

moval of timber from land, or (b) to have work per-

formed of a kind which is a regular or recurrent part

of the work of the trade, business, occupation or pro-’

fession of such person, shall for the purposes of this

section be deemed a contractor, and such other person

a subcontractor.

“342.690. Exclusiveness of liability.

“(1) If an employer secures payment of compensa-

tion as required by this chapter, the liability of such

employer under this chapter shall be exclusive and in

place of all other liability of such employer to the em-

ploye, his legal representative, husband or wife par-

ents, dependents, next of kin, and anyone shsebhie

entitled to recover damages from such employer at law

or in admiralty on account of such injury or death.

For purposes of this section, the term ‘employer’ shall

include a ‘contractor’ covered by subsection (2) of

KRS 342.610, whether or not the subcontractor has in

fact, secured the payment of compensation.”

The provisions of KRS 342.610(2) have been interpreted

in Elkhorn-Hazard Coal Land Corporation v. Taylor Ky.

039 S. W. 2d 101 (1976), wherein a unanimous ers by

per curiam opinion noted that several states, including

Kentucky, “have extended coverage to workers who are not

actually employees of the person ultimately made liable for

the payment of compensation awards,” Id. at 103, by the

legislative device of adopting provisions “by which a person

24a

Memorandum Opinion

is deemed to be a contractor.” Jd. at 104 (mphasis in

original.) These provisions are limited in application to a

person who contracts with another to have work performed

for him in the two situations described in subparts (a) and

(b) of the section. In the cited case an occupationally

diseased employee of M & A Coal Company, the plaintiff-

appellee Taylor, sought to extend coverage of the Act to the

land company under this section. Coverage was denied

upon the determination that M & A Coal Company was

mining coal for itself and not for the land company which

had no business of mining coal upon the record before the

Court. This decision will be reviewed below in connection

with the facts of the instant case.

In assessing Kentucky law as to whether or not appli-

eation of the Act would be approached on any different

policy grovnd because an “employer” was seeking coverage,

I consider binding the case of Mahan v. Litton, Ky., 321

S. W. 2d 243, 245 (1959), where a youth employed by a

route salesman was injured, and brought a common law

tort action against the salesman’s employer. The Court

found the Act should have been applied and that the trial

court was without jurisdiction to entertain the civil action.

The Court wrote:

“Wherever the Workmen’s Compensation law is ap-

plicable, the rights and remedies granted or provided

thereby are exclusive with certain exceptions which the

statute makes. Hence, the right to maintain an action

for damages for personal injuries and any correspond-

ing liability of the employer to the employee for negli-

gence of the employer, directly or under the doctrine of

respondeat superior, are extinguished, and no common

law action ean be maintained to recover damages.

[Citations omitted. ]

25a

Memorandum Opinion

“The question of the relationship of employer and

employee has usually arisen in respect of liability or

nonliability for tort and in claims for workmen’s com-

pensation. The test in the two categories is substan-

tially the same. If there is any difference, it lies in the

attitude of greater liberality in workmen’s compensa-

tion cases to hold the relationship to exist than in cases

of vicarious liability for tort.”

Accordingly, I conclude the Act should be applied without

any particular policy sensitivity to the status of the persons

involved or their respective roles in the employer-employee

context.

I find any person must show in order to secure “con-

tractor under” coverage of the Act, KRS 342.610(2), the

following requisites: (1) A person must contract with

another, (2) to perform work for him, (3) which involves

the removal, excavation or drilling of mineral, or (4) which

is a part of such person’s regular or recurrent business or

oceupation which normally would be performed by such

person’s own employees.

Il. MATERIAL FACTS

The history of Blue Diamond is set forth in the uncon-

troverted affidavit of Gordon Bonnyman, president and

chief executive officer of Blue Diamond and president and

chief executive officer of Scotia. [Record, Vol. III, Item

37.] Blue Diamond was incurporated in 1915 under a mul-

tiple purpose charter which included the authority to en-

gage in the businesses of mining coal, dealing in coal prop-

erties and of buying and selling coal. Blue Diamond was

incorporated for the primary purpose of operating Blue

Diamond Mine Ne. 1 at Blue Diamond, Kentucky. [Bonny-

man affidavit.]

26a

Memorandum Opinion

Blue Diamond was in the business of coal mining for

itself from its inception until December 4, 1974, when it

turned over to its newly formed and wholly owned subsid-

iary, Blue Diamond Mining, Inc., its Leatherwood, Ken-

tucky operation. The Leatherwood mine was the last mine

directly operated by Blue Diamond for itself. [Bonnyman

affidavit. ]

In 1960 and 1961 Blue Diamond decided to form a new

corporation, Scotia, to develop by mining some 12,589 acres

of coal lands near Oven Fork, Kentucky which joined an

additional 2,000 odd acres in the State of Virginia. Blue

Diamond put together the properties and formed Scotia to

mine them. [Bonnyman affidavit. ]

Blue Diamond funded the opening of the Scotia mine.'

{[Bonnyman affidavit. }

Blue Diamond owns all of the outstanding stock of other

operating companies, including Blue Diamond Mining, Inc.,

Stearns Mining Company, and Harris Mining Company.

[Bonnyman affidavit. ] .

Blue Diamond exercises dominance in all mining de-

cisions at Scotia, and maintains a corporate staff to dis-

charge such technical functions. [Witnesses Jasper Cor-

nett, Blue Diamond vice-president for mining operations;

R. D. Cornwell, Blue Diamond general manager of mines. ]

Blue Diamond takes all of the coal mined by Scotia and

sells it on Blue Diamond invoices. Blue Diamond retains

all monies received from the sale of coal returning to Scotia

from general, comingled [sic] corporate funds such money

as Scotia requires for its operation. Separate books are

maintained for each corporation in the Blue Diamond family

with Blue Diamond’s management expenses being allocated

on a tonnage basis to the several producing companies

i hows that three mines are operated at the same

PI oP Ly Scotia. This case involves only the Imboden seam which

is the deepest of such mines,

27a

Memorandum Opinion

against the “debt” owed to each such company for tonnage

produced. [Affidavit of Harmon McCarter, Blue Diamond

treasurer and Scotia treasurer, Record, Vol. III, Item 38;

testimony of Mr. McCarter at trial.]

Ill. ANALYSIS

The analysis will be upon a format controlled by the

legal requirements of the Kentucky compensation law with

the undisjated facts discussed thereunder.

A peison must contract with another. Blue Diamond

and Scotia have been shown to be persons under the Act.

The parties admit in argument that in Kentucky an ascer-

tainable course of conduct may be the basis for finding a

contract implied in fact. SEG Employees Credit Union v.

Scott, Ky., S. W. 2d (24 KLS 11, August 12,

1977) [554 S. W. 2d 402]; Kellum v. Browning’s Admr.,

Ky., 21 S. W. 2d 459, 465 (1929). The undisputed course of

conduct between Blue Diamond and Scotia, considered as

contracting parties, is clear. The intent of the parties as to

their respective functions in the Oven Fork, Kentucky min-

ing operation and the consideration to be exchanged be-

tween them are beyond doubt. I find a contract to exist

between the parties from 1962 to date.

Plaintiffs argue the contract is unenforceable under the

holding in Baber v. Lay, Ky., 305 S. W. 2d 912 (1957),

where the Kentucky court found a total output contract for

the sale and purchase of coal to be unenforceable in an

action between the contracting parties. The contract was

held to contain an illusory promise to purchase coal and,

therefore, lacked mutuality. The decision, however, does

not afford this Court a basis to hold the contract implied in

fact between Blue Diamond and Scotia unenforceable. The

contracting parties are not before this Court and, upon the

entire record, neither of the parties to that contraet is com-

plaining about it.

28a

Memorandum Opinion

To perform work for him. It is undisputed that at the

inception of the arrangement between Blue Diamond and

Scotia, it was a part of Blue Diamond’s business to mine

coal for itself. It also was part of Blue Diamond’s business

to mine coal for itself upon the effective date of the statute,

January 1, 1973. Returning to the Elkhorn-Hazard de-

cision, there the land company’s lease income insulated it

against economic loss by prospective decreases in the price

of coal or from inefficient operations. The Court could find

no evidence that the land company had a business of mining

coal “or that it was conducting any work through the use of

alease ... which normally would have been accomplished

through the use of its own employees.” 5298S. W. 2d at 104.

Each of the factors identified by the Elkhorn-Hazard court

as being factually material to application of the Act is

satisfied by undisputed facts in the instant case.

Which involves the removal, excavation or drilling of

mineral; or, which is a part of such person’s regular or re-

current business or occupation. The uncontroverted facts

show that in 1961 Scotia was formed to mine coal for Blue

Diamond which at that time was engaged in direct coal

mining. The work initially contracted to Scotia has been

prosecuted and remains uncompleted.

IV. PLAINTIFFS’ ARGUMENT

Plaintiffs argue for a result contrary to the one I have

reached. Even though plaintiffs’ theory has been men-

tioned, it seems appropriate to confront it directly at this

juncture. The gist of plaintiffs’ contention is that Scotia

was the operator of the mine at Oven Fork, Kentucky and

had the obligation to comply with all mine safety require-

ments lawfully imposed. Where Scotia did not discharge

the mine safety functions but Blue Diamond did undertake

to comply with them, the conclusion argued for is that

29a

Memorandum Opinion

thereby Blue Diamond became a subcontractor of Scotia.

In United Engineers And Constructors, Inc. v. Branham,

Ky., 550 S. W. 2d 540 (1977), the Kentucky court instructs

that “substance prevails over form, and that the main

dispositive criterion is whether it is understood that the

alleged principal or master has the right to control the de-

tails of the work.” Jd. at 543 . In the Elkhorn-Hazard de-

cision the court held the Act did not apply precisely because

the record did not show that it was the business of the land

company to engage in coal mining. A person to be deemed

a contractor must contract out some regular part of its

business operations which normally would have been per-

formed by its own employees. Examination of the uncon-

troverted proof convinces me that it was never a part of the

regular business of Scotia to be basically responsible for

the discharge of mine safety functions as between Blue

Diamond, Scotia and its employees.? Scotia cannot con-

tract out that which it does not control.* To reach the

result desired by plaintiffs I would have to ignore the un-

controverted realities of the situation shown by the evidence

under applicable and binding legal standards. This I

decline to do.

A separate formal summary judgment in defendant’s

favor and against the plaintiffs will be entered forthwith.

This the 21st day of September, 1977.

(s) H. David Hermansdorfer, Judge

2The evidence shows that Blue Diamond reques i

ventilation studies relied on by plaintiffs in the int a Taga con's

Rick Keen, former MESA engineer.] Blue Diamond determined when

pres Panel = implement such recommendations and, admittedly, Scotia

one not have rejected its parent’s decision. (Testimony, Jasper Cor-

_ The fact that Scotia never had independent cor

vis-a-vis Blue Diamond is evidenced by the admitted g vay ey er

executive personnel are not compensated by Scotia directly, but are paid

by Blue Diamond which in turn charges back to Scotia and other closel

held companies proportionate costs of the overall management caniane,

[Affidavit, Harmond [sic] McCarter, Record Vol. III, Item 38; Exhibit A

to Affidavit of Attorney Gerald M. Stern.] Lee

30a

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF KENTUCKY

. PIKEVILLE

Civil Action No. 77-69

Jennirer Booes, Individually and as Adminis-

tratrix of the Estate of Dennis Clay Boggs,

Et AL. - - - - : . - Plaintiff's

Buve Diamonp Coat CoMPany . . - Defendant

ORDER—Filed September 21, 1977

In conformity with the Memorandum Opinion filed

herein this date and upon consideration of all matters filed

in support of and in opposition to defendant’s motion for

summary judgment, Rule 56, F.R.C.P., and considering

plaintiffs’ evidence in chief, and the Court being sufficiently

advised,

The Court finds that there is no issue of material fact

remaining as to the motion for summary judgment and the

parties have asserted no such issue. The uncontroverted

facts establish that the defendant meets each and every

requirement of KRS 342.610(2) and, accordingly, is entitled

to the limitations provided in KRS 342.690 making work-

men’s compensation the exclusive remedy of the plaintiffs

in this action.

Ir Is, Turrerore, OrpeRED AND Apsvupcep that defend-

ant’s motion for summary judgment be, and the same

hereby is, SusTAINED.

sla

Order

Ir Is Furrner Orverep that the complaint herein be, and

the same hereby is, Dismissep with prejudice.

It Is Furruer Orverep that the Clerk shall strike this

action from the docket of this Court.

This the 21st day of September, 1977.

(s) H. David Hermansdorfer, Judge

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.