Gonzales v. Walchuk

No. 02-008

IN THE SUPREME COURT OF THE STATE OF MONTANA

2002 MT 262

NORMA O. GONZALES,

Plaintiff and Appellant,

v.

LAWRENCE WALCHUK, ROBERT B.
EKBLAD and PHYLLIS EKBLAD,

Defendants and Respondents.

APPEAL FROM: District Court of the Twentieth Judicial District,
In and For the County of Sanders,
Honorable C. B. McNeil, Judge Presiding

COUNSEL OF RECORD:

For Appellant:

James D. Moore, Attorney at Law, Kalispell, Montana

For Respondent:

James R. Walsh, Smith, Walsh, Clarke & Gregoire, Great Falls, Montana

Submitted on Briefs: June 13, 2002

Decided: November 26, 2002

Filed:

__________________________________________
Clerk
Justice W. William Leaphart delivered the Opinion of the Court.
¶1 On summary judgment, the Twentieth Judicial District Court,

Sanders County, concluded as a matter of law that a Certificate of

Independent Contractor Exemption issued by the Montana Department

of Labor and Industry is conclusive proof of a worker’s status in

the face of evidence that the Certificate was obtained by fraud. We

reverse and remand.
FACTUAL AND PROCEDURAL BACKGROUND

¶2 Norma O. Gonzales fell from the roof of a carport that she was

painting on September 25, 1998, sustaining severe injuries.

Alleging by Complaint that Lawrence Walchuk hired her to paint a

house owned by Robert and Phyllis Ekblad, Gonzales claimed that her

employers failed to provide her with a safe workplace and workers’

compensation insurance coverage. Walchuk denied that an employer-

employee relationship existed. The Ekblads answered with the

affirmative defense that Gonzales worked as an independent

contractor and was unprotected by workers’ compensation or the

property owners’ insurance.
¶3 Through discovery, Gonzales learned that a Certificate of

Independent Contractor Exemption (“Certificate”) had been issued in

her name by the Montana Department of Labor and Industry a few

weeks prior to the accident. She also discovered that the Ekblads

are corporate officers and major shareholders in the Hot Springs

Telephone Company, which was the actual lessee of the residence

when the accident occurred. The Company provided the residence to

Walchuk as partial compensation for his employment.

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¶4 At the close of discovery on September 20, 2001, the parties

discussed stipulating to an amendment to the pleadings to add the

Hot Springs Telephone Company as a defendant and vacating the trial

date set for December 10, 2001. However, four days later, before a

stipulation was executed, the Respondents moved for partial summary

judgment on the issue of Gonzales’s status as an independent

contractor. Gonzales moved the court for leave to amend the

pleadings. The District Court heard oral argument on the two

motions on November 13, 2001. A transcript of that hearing is not

part of the record submitted to this Court on appeal. Gonzales

explained by brief that she proposed to amend her Complaint not

only by seeking to enjoin the Telephone Company, but by adding a

claim of fraud against the Respondents and by including an

independent cause of action for failure of her employers to enroll

in the workers’ compensation insurance program, pursuant to § 39-

71-515, MCA.
¶5 On November 26, 2001, the District Court denied the motion to

amend the pleadings and granted complete summary judgment in favor

of Walchuk and the Ekblads. The court held that the Certificate

issued to Gonzales by the Department of Labor and Industry provides

conclusive proof of Gonzales’s employment status as an independent

contractor, pursuant to § 39-71-401(3)(c), MCA.

¶6 We rephrase the issues raised on appeal as follows:

¶7 1. Whether the District Court erred in granting summary

judgment on the basis that issuance of a Certificate of

Independent Contractor Exemption by the Department of Labor and

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Industry precludes an action against an employer for a work-related

injury when presented with evidence that the Certificate was

obtained by fraud?

¶8 2. Whether the District Court abused its discretion by

denying Gonzales’s motion for leave to amend her Complaint?
STANDARD OF REVIEW

¶9 The standard of review for a grant of summary judgment is de

novo. This Court will apply the same evaluation as the district

court based upon Rule 56, M.R.Civ.P. The moving party must

establish both the absence of genuine issues of material fact and

entitlement to judgment as a matter of law. Bruner v. Yellowstone

County (1995), 272 Mont. 261, 264, 900 P.2d 901, 903. Once the

moving party has met its burden, the opposing party must present

material and substantial evidence, rather than mere conclusory or

speculative statements, to raise a genuine issue of material fact.

Bruner, 272 Mont. at 264, 900 P.2d at 903. Our standard of

review of a question of law is whether the legal conclusions of the

trial court are correct. Spain v. Montana Department of Revenue,

2002 MT 146, ¶ 20, 310 Mont. 282, ¶ 20, 49 P.3d 615, ¶ 20 (citation

omitted).
DISCUSSION

¶10 The District Court ruled as a matter of law that the approval

of Gonzales’s application for an independent contractor exemption

by the Department of Labor and Industry constitutes conclusive

proof of Gonzales’s employment status under the Montana Workers’

Compensation Act. Section 39-71-401(3)(c), MCA, states:

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 When an application is approved by the department, it is

conclusive as to the status of an independent contractor

and precludes the applicant from obtaining benefits under

this chapter.

Accordingly, the court found that the exemption was effective at

the time of the accident and concluded that Gonzales was an

independent contractor without standing to rely upon the Montana

Safety Act, Title 50, ch. 71, part 2, Montana Code Annotated.

¶11 Gonzales presented evidence and argument before the District

Court to rebut the argument that the issuance of a Certificate

constitutes conclusive proof of her status. In her brief in

opposition to summary judgment, she argued that she worked as an

employee on the house-painting project and did not meet the

statutory definition of an independent contractor. She also

claimed that she neither knowingly applied for an independent

contractor’s exemption nor authorized her employer to seek an

exemption on her behalf. Stating that she informed Walchuk that

she had not previously worked as a painter before he hired her,

Gonzales asserted that Walchuk fraudulently induced her to complete

and sign an Independent Contractor Exemption Affidavit

(“Affidavit”). Gonzales also claimed that Walchuk then submitted

the sham Affidavit to the State of Montana without her knowledge or

consent. Citing Moschelle v. Hulse (1980), 190 Mont. 532, 622 P.2d

155, for the proposition that fraud vitiates a contract from its

inception and § 28-2-401, MCA, which states that consent is not

real or free when obtained through fraud, Gonzales argued that the

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Respondents’ fraud invalidates both her consent to execute the

Affidavit and the Department’s issuance of the exemption

Certificate.

¶12 On appeal, the Respondents maintain that the District Court

correctly refused to consider evidence of fraud on summary judgment

after denying Gonzales’s motion to amend the pleadings. Because

Rule 9(b), M.R.Civ.P., requires that the circumstances constituting

fraud be stated with particularity in the pleadings and Gonzales

failed to allege fraud in her Complaint, the Respondents contend

that the issue was not properly before the court.
¶13 It is well settled that “a complaint must put a defendant on

notice of the facts the plaintiff intends to prove; the facts must

disclose the elements necessary to make the claim; and the

complaint must demand judgment for the relief the plaintiff seeks.”

Larson v. Green Tree Financial Corp., 1999 MT 157, ¶ 35, 295 Mont.

110, ¶ 35, 983 P.2d 357, ¶ 35 (citation omitted). The complaint

must provide a defendant with notice and an opportunity to defend

himself. Larson, ¶ 35.

¶14 Gonzales stated in her Complaint and Demand for Jury Trial

that she was an employee of the Respondents within the meaning of

the Workers’ Compensation Act. She claimed that the Respondents

not only failed to provide a safe workplace, they also failed to

provide workers’ compensation coverage for her. Thus, the

Complaint clearly put Walchuk and the Ekblads on notice that

Gonzales intended to prove that she was an employee who was injured

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in the course of her employment and wrongly denied workers’

compensation coverage.

¶15 Gonzales acknowledges on appeal that she did not assert that

her alleged employers fraudulently induced her to waive her rights

to workers’ compensation coverage as a separate claim. She first

raised the issue before the District Court by brief for the purpose

of avoiding the Respondents’ affirmative defense that the

Certificate conclusively established her status as an independent

contractor. Arguing that further pleadings were not necessary to

raise a defense to an affirmative defense, Gonzales cites Wheat v.

Safeway Stores, Inc. (1965), 146 Mont. 105, 404 P.2d 317, where

this Court clarified that our Rules of Civil Procedure do not

direct a plaintiff to file a pleading in reply to an answer unless

a counterclaim is asserted or unless specifically ordered to do so

by the trial court. Where no responsive pleading is required or

permitted, an averment in an answer, such as an affirmative

defense, is considered denied or avoided, according to Rule 8(d),

M.R.Civ.P.
¶16 In this case, the District Court did not order Gonzales to

reply to the Ekblads’ Answer, which raises the affirmative defense

that due to Gonzales’s independent contractor status, the

Respondents bear no liability for her injuries. Therefore, under

Rule 8, M.R.Civ.P., no further pleadings were permitted without

permission of the court. The Respondents acknowledge that they

were aware of Gonzales’s contention that the Certificate was

obtained by fraud more than a year before they filed a motion for

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summary judgment. The Respondents attached a copy of the

Certificate to their First Request for Admissions, which Gonzales

answered on August 11, 2000, with the following statement:

REQUEST FOR ADMISSION NO. 6: Admit that [the Certificate
of Independent Contractor Exemption] was not revoked,
withdrawn, or canceled on or before the date of the
claimed accident at issue.

ANSWER: Objected to as calling for a legal conclusion

which Plaintiff is not qualified to give. Without

waiving this objection, Plaintiff denies the same, both

as a result of lack of knowledge as to the subject of

this inquiry and she believes the Defendants to have

fraudulently obtained the same as a result of which it

would be void, or canceled and revoked ab initio by the

State of Montana.
Both parties conducted further discovery on the circumstances

surrounding the completion and submission of Gonzales’s application

Affidavit to the Department of Labor and Industry.

¶17 While Rule 9(b), M.R.Civ.P., requires that a claimant plead

fraud with particularity to support a claim for damages, nothing in

our Rules of Civil Procedure bars a court from considering evidence

of fraud or misrepresentation presented to avoid an affirmative

defense on summary judgment. The burden of the party opposing

summary judgment is to present substantial evidence that raises a

genuine issue of material fact. Accordingly, we conclude that

evidence presented by Gonzales indicating that the Respondents

fraudulently induced her to complete and sign an independent

contractor Affidavit, which the Respondents then submitted to the

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State of Montana, was properly before the District Court despite

the court’s denial of Gonzales’s motion to amend her Complaint.

¶18 The Respondents also argue on appeal that Gonzales desired to

engage the District Court in exactly the sort of fact-intensive

inquiry that the Legislature specifically intended to avoid by

setting forth the legal presumption that approval of an application

for an exemption by the Department of Labor and Industry is

conclusive as to the status of an independent contractor. They

point out that the Legislature enacted § 39-71-401(3)(c), MCA, to

provide a method for a worker to declare his or her employment

status before an accident occurs and to give employers the security

of knowing when they are responsible for furnishing workers’

compensation coverage.
¶19 While § 39-71-401(3)(c), MCA, plainly states that an approved

application is conclusive as to the status of an independent

contractor, the case sub judice raises the question of whether the

conclusive presumption embodied by the statute presupposes that an

applicant knowingly and voluntarily completes and submits the

application to the Department of Labor and Industry.

¶20 The District Court issued no findings on the real

circumstances of Gonzales’s employment and appeared to regard

evidence that the application for independent contractor status was

obtained by fraud as immaterial. The court granted summary

judgment to the Respondents based solely on the legal presumption

that an approved application is conclusive as to the status of an

independent contractor, pursuant to § 39-71-401(3)(c), MCA.

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¶21 Gonzales offered sworn testimony to the District Court that

her employers obtained her Independent Contractor Exemption

Affidavit by fraud and submitted the application without her

knowledge or consent to the Department of Labor and Industry. By

affidavit and deposition, Gonzales stated that she emigrated from

Jalisco, Mexico, to the United States in 1989 and was 33 years old

at the time of the accident. She received a sixth grade education

in Mexico and had no formal schooling in the English language.

After her husband was imprisoned in 1998, Gonzales found

housekeeping work to support herself and her two children in Hot

Springs, Montana. She explained that she cleaned Walchuk’s house at

102 Wall Street in Hot Springs for a few months before Walchuk

offered her the job of helping another woman, Theresa Hunter, paint

the exterior of his residence. Gonzales testified that she told

Walchuk that she had no prior experience as a painter when he hired

her.
¶22 Robert Ekblad, who was Walchuk’s supervisor at the Hot Springs

Telephone Company, testified that he directed Walchuk to have each

of the women hired to paint the house obtain an exemption from

workers’ compensation and unemployment insurance coverage. Walchuk

acknowledged that he presented Gonzales and Hunter with the

applications for exemptions required by the Montana Department of

Labor and Industry. He asked Hunter and Gonzales to fill in the

blanks on the standardized forms and brought the women before a

notary public where the Independent Contractor Exemption Affidavits

were signed and notarized.

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¶23 According to Gonzales’s deposition testimony, she told Walchuk

that she could not read English and relied upon Walchuk to explain

the purpose and meaning of the Affidavit he asked her to complete.

Walchuk did not read the Affidavit to Gonzales but explained that

the form was “not important” and only necessary for “tax purposes.”

With spelling help from Walchuk and Hunter, Gonzales listed her

occupation as “painter” and filled in her mailing address. She

told Walchuk that she did not have a social security number and was

directed to enter her husband’s number in the space provided.

Gonzales also testified that the notary did not ask for

identification or inquire whether she understood what she was

signing.
¶24 Ekblad paid the $25.00 application fee for Gonzales; Walchuk

mailed her Affidavit to the Department of Labor and Industry. On

August 19, 1998, the Department approved Gonzales’s application and

issued her a Certificate that exempted her from the Workers’

Compensation Act for three years. Because the Certificate listed

an incorrect post office box number, Gonzales did not receive

notice by mail that her application had been approved by the

Department. She testified that she only learned about her

independent contractor’s exemption through discovery.

¶25 The undisputed evidence presented by Gonzales that her

employers committed fraud upon her and the State of Montana raises

a genuine issue of material fact regarding the validity of the

Certificate of Independent Contractor Exemption issued to Gonzales

by the Department of Labor and Industry. Therefore, we conclude

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that Gonzales, as the non-moving party, met her burden in opposing

summary judgment. Although Gonzales also marshaled evidence before

the District Court to support an argument that she worked as an

employee on the house-painting project and not as an independent

contractor, we reach no conclusion regarding Gonzales’s employment

status at the time of her accident and leave resolution of this

matter to the trial court on remand.

¶26 We hold that the presumption set forth in § 39-71-401(3)(c),

MCA, that issuance of a Certificate of Independent Contractor

Exemption is conclusive as to the status of an independent

contractor, presupposes that the applicant knowingly and

voluntarily completes and submits the application. We further hold

that this presumption does not survive in the face of proof that

the Certificate was obtained by fraud. Consequently, we conclude

the District Court erred by granting summary judgment as a matter

of law.
CONCLUSION

¶27 We reverse the grant of summary judgment in favor of Walchuk

and the Ekblads and remand for further proceedings consistent with

this opinion. Gonzales presented substantial evidence that raised

a genuine issue of material fact as to whether the Certificate was

obtained by fraud. Thus, she has met her burden in opposing

summary judgment. We do not reach the issue of whether the

District Court abused its discretion by denying Gonzales’s motion

for leave to amend the pleadings and trust the court will have an

opportunity to reconsider such a motion upon remand.

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¶28 Reversed and remanded.

/S/ W. WILLIAM LEAPHART

We concur:

/S/ PATRICIA COTTER
/S/ JAMES C. NELSON
/S/ JIM REGNIER
/S/ JIM RICE

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