Mail Boxes, U.S.A. v. Industrial Commission

OPINION

GERBER, Judge.

This is a special action review of an Arizona Industrial Commission award establishing a sole proprietor’s average monthly wage for purposes of a permanent disability award. One issue is presented: whether the Administrative Law Judge (ALJ) erred by relying on hypothetical earnings of a fictitious employee to establish the respondent employee’s (claimant’s) average monthly wage. Be-, cause the ALJ erroneously applied Ariz.Rev. StatAnn. (“AR.S.”) section 23-901(5)(i) (Supp.1992) in establishing claimant’s average monthly wage, we set aside the award.

FACTS AND PROCEDURAL HISTORY

In April 1989, claimant purchased a franchise from the petitioner employer, Mail Boxes, Etc., U.S.A (Mail Boxes). On April 10, 1989, he contacted the petitioner carrier, State Compensation Fund (Fund), to obtain workers’ compensation insurance for his business, including sole proprietor coverage for himself.

On December 12, 1989, claimant fell and sustained industrial injuries to both knees. He filed a workers’ compensation claim, which was accepted for benefits. On June 18,1990, his average monthly wage was fixed at the amount of $1650 per month. Approximately one year later, his claim was closed with a permanent impairment. This closure notice computed the average monthly wage at $0 per month for purposes of permanent disability benefits. The claimant timely requested a hearing. At two ensuing hearings, testimony came from the claimant, two certified public accountants, and the Fund’s underwriting department representative.

Claimant testified that after purchasing the Mail Boxes franchise, he immediately obtained workers’ compensation coverage from the Fund. He stated that he read the application for sole proprietor coverage before he signed it and understood that in the event of injury the compensation benefit he would receive would be based on a figure of $1650 per month. He also stated that the franchise was his primary source of income and that he worked Monday through Saturday, approximately 55 hours per week, with additional time during the Christmas holidays.

Claimant further testified that his knee injuries required medical treatment, including surgery, and resulted in permanent impairment. He stated that he sold his business in August 1990 because his injuries would have made it necessary for him to hire a store manager at approximately $8 per hour.

Claimant explained that when he purchased Mail Boxes, he paid the former owners approximately $4,000 and assumed a $40,000 note. He loaned the business approximately $20,000 from his personal funds. He stated that he reported no personal in*225come on his 1989 federal income tax return and that there was no profit from his Mail Boxes business in 1989.

Larry Counts testified on behalf of the Fund’s underwriting department. He stated that on April 11,1989, the Fund bound coverage for claimant. Claimant then signed and returned a written application for sole proprietor coverage, which was accepted by the Fund. Counts explained that sole proprietor coverage is not mandatory but is allowed by statute. He stated that claimant was charged a premium based on an assumed average monthly wage of $1650 per month and that he paid approximately $300 per quarter for this coverage. He also stated that claimant was paid $11,266 in medical benefits and $6,669.60 in temporary disability benefits following his industrial injuries.

Deborah J. Fagan, a certified public accountant, testified that she became the accountant for claimant’s business beginning in December 1989. She stated that sole proprietors do not earn wages but instead receive draws against the net profit of the business. Sole- proprietors do not receive wages because they cannot be their own employees; as a sole proprietor, the business and the claimant are the same entity.

Fagan further testified that in December 1989, claimant drew $3400 out of his business as a partial loan repayment of the initial $20,000 investment he made when he purchased the business; that from April through December 1989, claimant showed a net loss of $3976; and that during the same period he made capital expenditures of $10,716.20. Fagan stated that, considering the capital expenditures, claimant actually had a 1989 profit of $6740.20.

Steven M. Kopp, a certified public accountant, testified on behalf of the Fund. He stated that he had reviewed claimant’s business records for April 1989 through August 1990. Contrary to Fagan, he concluded that the claimant had no earned income in 1989. He explained that a sole proprietor’s wages are actually the earned income of the business. After reviewing claimant’s federal income tax returns, financial statements and general ledger, Kopp stated that these documents reflected a loss in 1989.

Kopp testified that the $3400 payment to claimant in December 1989 did not represent earned income; instead, it was part of the initial $20,000 loan that claimant made to the business in April 1989. He stated that any money claimant took out of the business in 1989, including funds used for various capital expenditures, was part of this original loan because the business had no earned income.

Kopp further testified that the claimant made a profit in December 1989, but it was insufficient to offset losses incurred from April through November 1989. He stated that although Mail Boxes lost money in both 1989 and 1990, claimant made a profit when he sold the business. However, this profit was return on an investment, not earned income for the business.

On December 13, 1991, the ALJ entered an award setting claimant’s average monthly wage at $1650 per month for purposes of permanent disability benefits. After the award was summarily affirmed on administrative review, the Fund brought this special action.

DISCUSSION The Fund argues that A.R.S. section 23—901(5)(i) and claimant’s insurance contract both manifest a clear intent that compensation for permanent disability is to be computed on the basis of the lesser of the assumed average monthly wage or claimant’s actual average monthly wage at the time of injury. Arizona Revised Statutes Annotated section 23-901(5) provides in pertinent part:

(i) The sole proprietor of a business subject to the provisions of this chapter may be deemed to be an employee entitled to the benefits provided by this chapter on written acceptance, by endorsement, at the discretion of the insurance carrier of an application for coverage by the sole proprietor. The basis for computing premium payments and compensation benefits for *226the sole proprietor shall be an assumed average monthly wage of not less than six hundred dollars nor more than the maximum wage provided by § 23-1041 and is subject to the discretionary approval of the insurance carrier. Any compensation for permanent partial or permanent total disability payable to the sole proprietor shall be computed on the lesser of the assumed monthly wage agreed to by the insurance carrier on the acceptance of the applicar tion for coverage or the actual average monthly wage received by the sole proprietor at the time of injury.

(Emphasis added.)

In accordance with this statute, claimant’s application for sole proprietor coverage stated:

The sole proprietor of a business subject to the provisions of this chapter may be deemed to be an employee entitled to the benefits provided by this chapter on written acceptance by endorsement at the discretion of the insurance carrier of an application for coverage by the sole proprietor. The basis for computing premium payments and compensation benefits for the sole proprietor shall be an assumed average monthly wage of not less than $600 nor more than the maximum wages provided by Section 23-1041 and is subject to the discretionary approval of the insurance carrier. Any compensation for permanent partial or permanent total disability payable to the sole proprietor shall be computed on the lesser of the assumed monthly wage agreed to by the insurance carrier on the acceptance of the application for coverage or the actual average monthly wage received by the sole proprietor at the time of injury.

(Emphasis added.) This application for coverage was signed by the claimant on April 25, 1989 and was approved and accepted by the Fund on May 17, 1989.

Applying the statutory and contractual provisions to the facts in this case, the ALJ found:

15. Evidence at hearing indicates applicant did not draw out monies for himself that would indicate wages paid. Evidence did establish that for year 1989, applicant’s business did sustain losses in excess of $3,000.00. While business did generate profit in month of December, such is an unusual month in Mail Box business and cannot be construed as being representative of moneys [sic] earned on an average monthly basis. Business was sold 20 months after date of injury at a profit of $2000.00. Such also should not be used as a basis for wages earned as of date of injury.
16. Applicant’s testimony reflected that if applicant had hired a general manager to perform work applicant was engaged during course of employment, such general manager could be hired for $8.00 per hour. Applicant further testified on average he worked 50 hours per week. Based upon objected to but unrefuted evidence, applicant’s services were then worth $1733.20 per month as of date of injury.
17. While it is recognized applicant sustained a loss in 1989, it is further recognized that if operated only as an investor or owner of business, his losses would have increased by approximately $1733.32 per month.
19. It is deemed for permanent disability compensation purposes, applicant’s average monthly wage should be recalculated to be $1650.00 maximum per month.

Although it was not explicitly stated, the ALJ impliedly based his award of $1650 per month for permanent disability benefits on the basis that claimant would have had to pay a general manager $8 per hour, 50 hours per week, to perform the work that he performed at Mail Boxes. See Pearce Development v. Industrial Comm’n, 147 Adz. 582, 583, 712 P.2d 429, 430 (1985) (findings implicit in an ALJ’s award). The Fund argues that this reliance on wages of a fictitious general manager to establish the average monthly wage is erroneous and requires the award to be set aside. We agree.

In Finding No. 15, the ALJ acknowledges that claimant received no wages in 1989 be*227cause Mail Boxes sustained a loss in excess of $3000 that year. Despite recognition that claimant had no wages at the time of his 1989 industrial injury, the ALJ refused to apply that portion of A.R.S. section 23—901(5)(i) which requires that the lesser of the assumed wage and the actual wage be a basis for computing permanent disability benefits.

Claimant disputes the recomputation of the average monthly wage for several reasons. First, he argues that the June 18, 1990 notice of average monthly wage is res judicata fur all purposes. In support of this proposition, he cites Shaw v. Industrial Comm’n, 109 Ariz. 401, 510 P.2d 47 (1973), and Robinson v. Industrial Comm’n, 14 Ariz. App. 541, 484 P.2d 1070 (1971).

Although both Shaw and Robinson stand for the general proposition that an unprotested notice of average monthly wage is res judicata, neither case deals with a sole proprietor or involves A.R.S. section 23-901(5)(i). This court expressly recognized exceptions to this general rule. Robinson, 14 Ariz.App. at 541, 484 P.2d at 1070. Although this notice is res judicata as to claimant’s average monthly wage for purposes of temporary disability benefits, it cannot be res judicata as to permanent disability benefits because such an interpretation would directly contradict AR.S. section 23-901(5)(i).

Claimant next argues that the Fund should be estopped from utilizing his actual average monthly wage at the time of injury for calculating permanent disability benefits because it charged insurance premiums based on the assumed average monthly wage of $1650 per month. In order to invoke the doctrine of equitable estoppel, an individual must have reasonably relied to his detriment on the acts, promises, and representations of the adverse party. Graham v. Asbury, 112 Ariz. 184, 186, 540 P.2d 656, 658 (1975). This court has noted that estoppel is inapplicable where neither the employer nor the carrier perpetrated any fraud or deliberate deception. See McKaskle v. Industrial Comm’n, 135 Ariz. 168, 170, 659 P.2d 1313, 1315 (App.1983).

In this case, there is no fraud or deception which would support a claim of equitable estoppel. The parties bargained for an insurance contract at an agreed-upon premium. The contract provided that an assumed average monthly wage be a basis to compute premiums and temporary disability benefits. It also provided that the lesser of that assumed average monthly wage or the actual average monthly wage be a basis for computing permanent disability benefits. These provisions were contained in the application for insurance, which the claimant acknowledged that he read and signed.

Claimant next argues that the portion of A.R.S. section 23—901(5)(i) which allows a reeomputation of the average monthly wage for permanent disability benefits is unconstitutional. The Fund responds that this argument was not adequately preserved for appeal and, further, that creating a statutorily enumerated class of covered workers such as this one does not violate the constitution.

This court will not ordinarily consider an issue on appeal that was not raised before the Industrial Commission, Norsworthy v. Industrial Comm’n, 24 Ariz.App. 73, 74, 535 P.2d 1304, 1305 (1975). However, we will review matters which are in the record. See Stephens v. Industrial Comm’n, 114 Ariz. 92, 95, 559 P.2d 212, 215 (App.1977). In this case, the issue of constitutionality was raised before the Industrial Commission. The ALJ addressed this issue explicitly:

14. Applicant has challenged last sentence of A.R.S. § 23-901 5(i) as being unconstitutional. However, an administrative agency must assume the constitutionality of the Statutes under which it operates and enforces. Arizona Corporation Commission v. Tucson Gas & Electric Light & Power co., [sic], 67 Ariz. 12, 189 P.2d 907 (1958). It is deemed Statute providing for termination of benefits based on rcalculated [sic] average monthly wage is constitutional until otherwise decided upon by higher authority. Average monthly wage may be recalculated to a lesser figure in accordance with AR.S. § 23-901 5(i).

*228The Fund also argues that a request for affirmative relief was necessary to raise constitutionality. A party seeking affirmative relief from the court of appeals in a special action review of an Industrial Commission award must include a request for that relief in the notice of appearance. See Neitman v. Industrial Comm’n, 20 Ariz.App. 53, 55, 510 P.2d 52, 54 (1973). Affirmative relief need not be requested in order to present alternative bases for sustaining an award unless relief beyond that awarded is sought. See Stiles v. Industrial Comm’n, 25 Ariz.App. 543, 545, 545 P.2d 54, 56 (1976).

Here, claimant obtained an award setting his average monthly wage at $1650 per month for purposes of permanent disability benefits. The constitutionality of A.R.S. section 23—901(5)(i) was raised below by claimant in support of his argument against re-computation of the average monthly wage. The ALJ applied the statute, assuming its constitutionality, in reaching his award; however, he made no independent constitutional determination. On appeal, claimant urges this court to both affirm the award of $1650 per month and declare the statute unconstitutional. Because claimant seeks more than a mere affirmance of the award, a request for affirmative relief was necessary.

Assuming arguendo that a request for affirmative relief was not necessary, we address claimant’s argument that recomputation of the average monthly wage for purposes of permanent disability benefits is an unconstitutional denial of workers’ compensation benefits provided for by Article 18, section 8 of the Arizona Constitution, which states in relevant part:

The percentages and amounts of compensation provided in House Bill No. 227 enacted by the Seventh Legislature of the State of Arizona, shall never be reduced nor any industry included within the provision of said House Bill No. 227 eliminated except by initiated or referred measure as provided by this Constitution.

This provision was enacted in 1925 and applied to workers’ compensation benefits for employees of an employer. Sole proprietors were not included in this provision; they did not have workers’ compensation insurance available to them in Arizona until 1985, when the legislature made it available by statute. See Laws 1985, Ch. 136, § 1. Because sole proprietors are part of a statutorily enumerated class of workers created by the legislature, it was within the legislature’s discretion to prescribe the manner and extent of those benefits.

Finally, claimant argues that the ALJ’s conclusion that he had an average monthly wage of $1650 per month is reasonably supported by the evidence. Typically, wages earned during the 30 days preceding the industrial injury are the presumptive average monthly wage. See Davis v. Industrial Comm’n, 134 Ariz. 293, 295, 655 P.2d 1345, 1347 (App.1982). Claimant has the burden of proving all elements of the average monthly wage. Zapien v. Industrial Comm’n, 12 Ariz.App. 334, 336, 470 P.2d 482, 484 (1970). In establishing an average monthly wage, the Industrial Commission considers actual, not speculative, earnings. See Insurance Company of North America v. Industrial Comm’n, 116 Ariz. 21, 25, 567 P.2d 337, 341 (App.1977). The ALJ may use an expanded wage base when the presumptive base does not realistically reflect earning capacity. ELCO Veterinary Supply v. Industrial Comm’n, 137 Ariz. 46, 48, 668 P.2d 889, 891 (App.1983).

Here, both of the certified public accountants testified that a sole proprietor’s wage is equal to the earned income of his business. Fagan testified that although claimant showed a net loss for 1989 of $3976.00, considering his capital expenditures, he actually had a profit of $6740.20. Kopp contradicted that testimony. He stated that capital expenditures did not affect earned income because capital expenditures represented loans from claimant to the business. Kopp stated that claimant’s business had a $3976.00 loss in 1989, and thus claimant did not earn any wages. The ALJ resolved these conflicts in favor of Kopp and found that no wages were *229paid to claimant in 1989. Based on the ALJ’s resolution of the evidentiary conflicts, there is no support for finding that claimant had an average monthly wage of $1650 in 1989.

CONCLUSION

For all of the foregoing reasons, the award is set aside.

VOSS, P.J., concurs.