No. 95-426
IN THE SUPREME COURT OF THE STATE OF MONTANA
1996
SUZANNE E. SOUTH,
Plaintiff & Appellant,
v.
TRANSPORTATION INSURANCE CO,
Respondent/Insurer for
COMBUSTION ENGINEERING,
Respondent/Employer.
APPEAL FROM: Workers' Compensation Court
The Honorable Mike McCarter, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Don Edgar Burris, Billings, Montana
For Respondent:
Todd A. Hammer, Warden, Christiansen, Johnson &
Berg, Kalispell, Montana
L
Submitted on Briefs: January 4, 1996
MAR 1 8 1996 Decided: March 18, 1996
Filed:
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CLER.K OF SUPREME CO”=
S T A T E OF McmTANA
Justice William E. Hunt, Sr. delivered the Opinion of the Court.
Appellant Suzanne E. South (South) appeals the decision of the
Montana Workers' Compensation Court denying her petition to rescind
a settlement agreement arising from her 1986 back injury. We
reverse.
The sole issue on appeal is whether the Workers' Compensation
Court erred in refusing to rescind the settlement agreement.
FACTS
South sustained an on-the-job injury to her back in 1986. She
underwent back surgery in late 1986 and again in 1988 to alleviate
her back problems. Both surgeries were on the "L5/Sl" level of her
spine. In 1990, she entered into a full and final compromise
settlement agreement with her insurer. The settlement agreement
provided a list of seven jobs which both parties felt were
acceptable for South to do, and which were approved as appropriate
by a doctor. One of the approved jobs was that of massage
therapist. After accepting and signing the settlement
agreement, South moved to Seattle in order to begin massage
therapist training. Shortly after beginning the program, however,
South began to experience worsening back pain, for which she
consulted a Seattle area doctor. When her back pain did not abate,
South quit the massage training program and returned to Montana.
In 1994, South underwent a third surgery on her back, at the
"~4-5" level of the spine. She subsequently petitioned the
Workers' Compensation Court to rescind the settlement agreement,
alleging that both parties were operating under a mutual mistake of
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fact when it was signed. After trial, the Workers' Compensation
court denied south's petition and declined to rescind the
settlement agreement. In so doing, the Workers' Compensation Court
pointed out that the current problem area in South's back is
different than the area injured in her 1986 on-the-job accident.
The Workers' Compensation Court further cited testimony given by
South's doctor, who stated that "something new" must have happened
around 1991 to cause the re-injury. On this basis, the Workers'
Compensation Court found that the parties were not operating under
a mutual mistake regarding the nature or extent of South's injuries
at the time the settlement agreement was reached. It therefore
refused to rescind the settlement agreement, and South appeals.
ISSUE
Did the District Court err in refusing to rescind the
settlement agreement?
STANDARD OF REVIEW
We review the Workers' Compensation Court's findings of fact
to determine whether substantial credible evidence supports the
findings. Strickland v. State Comp. Mut. Ins. Fund (Mont. 19951,
901 P.zd 1391, 1393, 52 St.Rep. 962, 963 (citing Wunderlich v.
Lumbermen's Mutual Casualty Co. (1995), 270 Mont. 404, 892 P.2d
563). We review the Workers' Compensation Court's conclusions of
law to determine whether they are correct. Strickland, 901 P.2d at
1393 (citing Glaude v. State Comp. Mut. Ins. Fund (1995), 271Mont.
136, 894 P.2d 940).
DISCUSSION
South alleges that the settlement agreement should be set
aside because both parties were mutually mistaken regarding the
propriety of "massage therapist" as a career for someone who had
suffered a back injury. She contends that the settlement agreement
should be rescinded because of this mutual mistake. The Workers'
Compensation Court, however, found that no mistake had been made
regarding the nature or extent of South's injury at the time that
the settlement agreement was entered into, and therefore declined
to rescind it.
Full and final settlement agreements are contracts and are
subject to contract law. Giles v. Bozeman Public Schools (1993),
257 Mont. 289, 292, 849 P.2d 180, 182. A contract may properly be
rescinded if the parties were laboring under a mutual mistake
regarding a material fact at its inception. Wray v. State Comp.
Mut. Ins. Fund (1994), 266 Mont. 219, 879 P.2d 725. "A mutual
mistake occurs when, at the time the contract is made, the parties
share a common misconception about a vital fact upon which they
based their bargain." Mitchell v. Boyer (1989), 237 Mont. 434,
437, 774 P.2d 384, 386 (citations omitted). In order to justify
rescission, the mutual mistake must be regarding a fact that is
vital to the completion of the contract. Wray, 879 P.2d at 725.
Further, it must be "so substantial and fundamental as to defeat
the object of the parties in making the contract." Wyman v. DuBray
Land Realty (1988), 231 Mont. 294, 298, 752 P.2d 196, 199 (citing
Johnson v. Meiers (1946), 118 Mont. 258, 164 P.2d 1012).
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In the field of Workers' Compensation, the seminal case on
rescission for reason of mutual mistake of fact is Kienas v.
Peterson (1980), 191 Mont 325, 624 P.2d 1. Kienas was the first in
a string of modern cases to apply the principles of general
contract law to workers' compensation settlement agreements. In
Kienas, a final settlement agreement was set aside because the
parties were mutually mistaken regarding the nature and extent of
the claimant's injuries at the time the settlement was established.
Kienas, 624 P.2d at 3.
Numerous subsequent cases followed the line of reasoning set
forth in Kienas. These cases similarly addressed the question of
whether a mutual mistake of fact existed regarding the nature or
extent of the claimant's injuries at the time of settlement. See
Sanford v. Brandon Owens, Inc. (1994), 268 Mont. 8, 885 P.2d 444;
Giles, 849 P.2d 180; Wolfe v. Webb (1992), 251 Mont. 217, 824 P.2d
240; Rath v. St. Labre Indian School (1991), 249 Mont. 433, 816
P.2d 1061; Whitcher v. Winter Hardware Co. (1989), 236 Mont. 289,
769 P.2d 1215; Kimes v. Charlie's Family Dining (1988), 233 Mont.
175, 759 P.2d 986; Weldele v. Medley Development (1987), 227 Mont.
257, 738 P.2d 1281. Some were set aside, some were not, but all
confined the inquiry solely to whether or not a mutual mistake
existed regarding the nature or extent of claimant's injuries.
Since workers' compensation settlements by definition involve an
injured worker, it is only to be expected that very frequently the
alleged mutual mistake would concern the claimant's injury.
The Workers' Compensation Court, however, interpreted the
Kienas decision and its progeny to establish that a mutual mistake
regarding the nature or extent of the claimant's injury is the a
mutual mistake sufficient to set aside a final settlement
agreement. Having concluded that no such mistake existed at the
time the settlement agreement was formed, the Workers' Compensation
Court declined to allow the agreement to be rescinded.
While such a limitation might reasonably be surmised from the
Kienas line of cases, it is nevertheless incorrect. The
fundamental contract principles which allow for rescission do not
support such a narrow application. If a party can show a mutual
mistake of any material fact, impacting the contract to such an
extent that the intended bargain of the parties is defeated, the
contract may be rescinded. Mitchell, 774 P.2d at 386. Nothing in
general contract principles justifies the limitation of the mistake
doctrine to the nature and extent of the injuries. If a mutual
mistake exists in a workers' compensation settlement agreement
which would suffice to set it aside under general contract
principles, then it should be set aside. Because Kienas and its
progeny have their basis in these fundamental principles of
contract law, they must not be construed in such a way as to defeat
those same fundamental principles.
Moreover, while Montana workers' compensation cases have only
addressed rescission for mutual mistake of fact in the context of
the claimant's injury, other states have recognized that other
types of mutual mistakes may also warrant rescission. The Arizona
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Court of Appeals set aside a worker's compensation settlement when
the parties mistakenly stipulated that the claimant had no loss of
earning capacity, when in fact he had. Dutton v. Industrial Com'n
of Arizona (Ariz.Ct.App. 1989), 784 P.2d 290. The Minnesota
Supreme Court set aside a workers' compensation settlement that
mistakenly listed an incorrect date of injury, when the mistake
materially affected the claimant's rights under the settlement.
Heath v. Airtex Industries (Minn. 1980), 297 N.W.2d 269. As these
cases illustrate, the operative question is whether a mutual
mistake existed which justified rescission, without limitation to
how or when the mistake was made.
We find no error in the Workers' Compensation Court's
conclusion that the parties were not mistaken regarding the nature
and extent of South's injury at the time the contract was formed.
As set out above, however, the inquiry cannot end with that
question alone. Accordingly, we do find error in the Workers'
Compensation Court's failure to consider South's contention of
mutual mistake regarding the propriety of the job approved for her
to do.
In South's settlement agreement, seven jobs were set out, with
a doctor's approval, as ,appropriate for her to pursue. One of
these jobs was massage therapist. In accordance with the terms of
the agreement, South elected to begin massage therapist training in
order to pursue the career she had chosen from the approved list.
While in training, she re-injured her back, was forced to quit the
training program, and subsequently required additional surgery.
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The Workers' Compensation Court focused on the testimony of
South's doctor, who testified that "something new" must have
occurred after the settlement agreement to cause the re-injury to
her back. Relying on that testimony, the court refused to rescind
the agreement, because the occurrence of a re-injury did not
necessarily indicate that the parties were mistaken regarding the
initial injury when the contract was formed.
The mutual mistake that South alleged, however, was not
regarding the injury itself, but rather regarding the propriety of
"massage therapist" as a potential career for one who has an
injured back. South's doctor testified unequivocally that such a
career was entirely inappropriate for someone in South's condition
because it involved repeated bending as well as standing for
extended periods of time. South contended that both parties
mistakenly believed such training to be acceptable at the time the
settlement was signed because both parties relied upon the
erroneous opinion of the doctor who approved the list of possible
jobs.
The Workers' Compensation Court noted that "something new"
must have occurred to cause the re-injury. It therefore concluded
that the re-injury cannot be related back to the first injury. But
South alleged that the "something new" which caused her to re-
injure her back was the massage training itself. She contended
that it was her good-faith pursuit of an inappropriate job that led
to the second injury--a job she never would have attempted if it
had not been approved by and included in the settlement agreement.
The insurer argues, however, that even if such a mistake was
made, it was not material to the contract because "massage
therapist" was only one of seven jobs approved for South to pursue.
It contends that South remains free to pursue any of the remaining
six jobs, and that rescission is therefore unnecessary and
inappropriate.
We are not persuaded that the "massage therapist" job was not
material to the contract simply because the contract also included
six other jobs which South might have tried instead. What she
might have done is entirely irrelevant; what she did was act in
conformity with the contract to her detriment. Since, of the seven
choices, "massage therapist" was the job she chose, it is entirely
material whether she was able to do it or not.
Nor are we persuaded that the contract should not be set aside
because it still provides six other jobs South is free to explore.
Those jobs were approved after her first injury, but prior to her
re-injury; no evidence was presented that any of those jobs would
be appropriate now, after the re-injury. In fact, the existing
settlement agreement in no way takes into account the ramifications
of the re-injury.
At the trial before the Workers' Compensation Court, South's
doctor testified that it was more probable than not that the
massage training caused her re-injury. The insurer subsequently
elicited testimony from the doctor conceding that, hypothetically,
any number of events could cause a re-injury to a weakened back,
from coughing to mowing the lawn. But these hypothetical scenarios
9
cannot overcome South's allegation that the massage training caused
the re-injury, coupled with the doctor's testimony that the
training more likely than not was the cause of it.
South alleged a mutual mistake regarding the propriety of
including "massage therapist" as a possible career for someone with
a back injury. She further alleged that her attempt to pursue this
career, in conformity with the settlement agreement, caused her to
re-injure her back. The Worker's Compensation Court was presented
with uncontroverted testimony that such a career is in fact
inappropriate and that it more likely than not caused South's re-
injury.
We hold that both parties, at the time of the contract,
mistakenly believed "massage therapist" to be an appropriate job
for South to pursue. We further find that the inclusion of
"massage therapist" as a job option was a material part of the
contract at issue, because that was the option that South did in
fact pursue. Because both parties, at the time of the contract,
were mutually mistaken regarding a material fact, South is entitled
to rescission of the settlement agreement.
The settlement agreement is set aside.
We Concur:
Chief Justice
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Justice Charles E. Erdmann dissenting.
I respectfully dissent. I agree with the majority's
determination that the Workers' Compensation Court did not err when
it concluded that the parties were not mistaken in regard to the
nature and extent of South's injury at the time the settlement
agreement was entered into. I disagree, however, with the
majority's conclusion that the parties were mutually mistaken in
regard to the massage therapist position
The majority states that the Workers' Compensation Court
failed to consider South's contention of mutual mistake regarding
the residual labor market issue. In fact, the Workers'
Compensation Court made both factual findings and conclusions of
law specifically addressing this issue. The relevant factual
findings are as follows:
18. Dr. Moseley testified that with the exception
of the masseuse position the claimant is presently
capable of performing all the jobs previously approved by
Dr. Shaw.
19. The claimant testified that she would not have
agreed to the 1990 settlement if she had known she would
be unable to work as a masseuse. She did not, however,
tell Transportation or its adjuster that her acceptance
of the settlement was conditioned on the masseuse
position. Moreover, I did not find her testimony in this
regard credible.
20. Claimant has failed to persuade me that there
was any mistake concerning her ability to perform the job
of masseuse. As Dr. Moseley testified, "something new"
occurred in 1990 or 1991 which affected the claimant's
spine at ~4-5 level and worsened her condition. The
Court is not persuaded that claimant would have been
unable to work as a masseuse absent the additional
occurrence.
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21. Claimant has also failed to persuade me that
the masseuse position was material to the settlement
agreement. Dr. Shaw approved several jobs and, with the
exception of masseuse, she can still perform those jobs.
Claimant's ability to perform several jobs was material
to the agreement and she can still do so.
Conclusion of Law No. 3 reads as follows:
3. The claimant also contends that a mutual
mistake of material fact exists as to the parties'
understanding of her residual labor market. The
contention fails for two reasons. First, claimant has
failed to persuade me that her inability to work as a
masseuse is due to her original injury. Second, even if
the parties were mistaken as to the appropriateness of
the masseuse position, the settlement was not based on
that particular position but rather on the approval of
several positions, only one of which is now deemed
inappropriate. With the exception of the masseuse
position, the claimant has the same residual market now
as at the time of settlement. While she now asserts that
she would not have entered into the settlement had she
known that [she] could not work as a masseuse, she never
communicated that fact to Transportation. Moreover, the
Court is not persuaded that she would have in fact
refused the settlement had the position been disapproved
by Dr. Shaw.
This Court has reopened workers' compensation settlements, but
has done so rarely and reluctantly. See Whitcher v. Winter
Hardware Co. (19891, 236 Mont. 289, 769 P.2d 1215. It is well
established that this Court will not overturn the findings and
conclusions of the Workers' Compensation Court where there is
substantial evidence to support them. Laber v. Skaggs Alpha Beta
(1991), 247 Mont. 172, 175, 805 P.2d 1375, 1377. Nor will this
Court substitute its judgment for that of the Workers' Compensation
Court as to the weight of evidence on questions of fact. EBI/Orion
Group v. State Comp. Mut. Ins. Fund (1991), 249 Mont 449, 452, 816
P.2d 1070, 1072. Even though conflicting evidence may exist in the
13
record, it is the duty of the Workers' Compensation Court, and not
this Court, to resolve such conflicts, particularly when such
decisions involve credibility of witnesses and live testimony.
Smith v. United Parcel Service (1992), 254 Mont. 71, 75, 835 P.2d
717, 720.
To establish the element of mutuality, South testified that
she would not have entered into the agreement if the masseuse
position had not been approved. The Workers' Compensation Court
specifically found South's testimony in this regard not to be
credible. South also testified that she did not inform the insurer
or its adjuster of this condition so it is impossible to establish
that the insurer was even aware of South's unilateral expectation.
South was approved for seven different positions. She
selected one of those positions and was ultimately unable to
complete the training. Now, rather than accept one of the six
remaining positions, she essentially argues that the agreement was
for the masseuse position or nothing. In agreeing with South's
argument, the majority has ignored the essence of the agreement and
has rewritten its terms. The fact that South cannot perform one of
seven positions for which she was approved is not material to the
overall contract.
I note that the majority properly cites the standards of
review we use in appeals from decisions of the Workers'
Compensation Court, which are whether that court's findings are
supported by substantial evidence and whether its conclusions are
14
correct. Unfortunately, the majority then completely ignores and
fails to apply those standards to the decision before us.
The majority's substitution of its judgment for that of the
fact finder is evidenced by the statement: "& are not persuaded
that the 'massage therapist' job was not material to the contract"
(emphasis added), in derogation of the Workers' Compensation
Court's specific findings that & was not persuaded the job was
material, based in large part on its credibility finding regarding
South. Similarly, the majority "finds" that the job was a material
part of the contract, in direct contravention of the Workers'
Compensation Court's findings relating to that issue.
There was substantial evidence to support the Workers'
Compensation Court's conclusion that there was no "mutual" mistake
in regard to the masseuse position since the agreement was not
conditioned on South's ability to ultimately qualify for that
particular position. The Workers' Compensation Court correctly
concluded that there was no mistake as to a "material" fact, since
the agreement approved seven positions from which South could
choose. She can still choose from six of the positions and there
is no legal basis on which to rescind the settlement agreement. I
would affirm the Workers' Compensation Court
c?ifz?zL
Justice
15
Chief Justice J. A. Turnage and Justice K
foregoing dissenting opinion.
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