Potter v. PATTERSON UTI DRILLING CO.

IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

Opinion Number: 2010-NMCA-042

Filing Date: April 8, 2010

Docket No. 29,566

JAMES POTTER,

Worker-Appellant,

v.

PATTERSON UTI DRILLING CO. and
LIBERTY MUTUAL GROUP,

Employer/Insurer-Appellees.

APPEAL FROM THE WORKERS’ COMPENSATION ADMINISTRATION
Gregory D. Griego, Workers’ Compensation Judge

Dorato & Weems, LLC
Veronica A. Dorato
Albuquerque, NM

for Appellant

Allen, Shepherd, Lewis, Syra & Chapman, P.A.
Kimberly A. Syra
Amy M. Cardwell
Albuquerque, NM

for Appellees

OPINION

VIGIL, Judge.

{1} In this case, Worker was injured while working for Employer on a drilling rig in
Pennsylvania, and seeks workers’ compensation benefits in New Mexico. The dispositive
question is whether the employment contract was “made” in New Mexico because after
Worker accepted the offer of employment in New Mexico, he was required to take and pass
a drug test in Pennsylvania before he could start working on the oil rig. We hold that this

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requirement did not negate formation of the employment contract in New Mexico.
Accordingly, we reverse the workers’ compensation judge (WCJ) decision that there is no
jurisdiction to award benefits under our extra-territorial coverage statute, NMSA 1978, § 52-
1-64 (1989) (amended 2007).

BACKGROUND

{2} The material facts are undisputed. Mike Feaster, a rig manager employed with
Patterson UTI Drilling Company (Employer), called Worker at his home in Albuquerque to
offer him a job with Employer on a drilling rig in Pennsylvania. Feaster lives in, and called
from, his house in Truth or Consequences, New Mexico. Employer has an office in New
Mexico, and Worker had previously worked with Feaster. Worker accepted the offer of
employment on the phone and asked, “So, this is a for sure deal?” Feaster responded,
“Yeah, you need to fill this paperwork out.” Feaster then traveled to Worker’s home to
complete some employment paperwork, including a job application and a safety
questionnaire. After the meeting in Worker’s house and after Worker accepted Feaster’s
offer of employment, Feaster told Worker, “You’re hired, let’s go,” and both men then drove
together to Pennsylvania. Worker made sure to confirm employment with Employer before
leaving. He testified, “I wasn’t going out [to Pennsylvania] not knowing what was going to
happen.”

{3} Worker understood that upon arrival in Pennsylvania, he would have to take a drug
test and complete additional paperwork before working. As for the drug test, Worker would
take a “quick cup” drug test at the rig. Worker knew that failing this test meant that he
would be unable to work on the rig. After Worker passed the drug screen and completed
additional written tests, he began work.

{4} Shortly thereafter, Worker was injured in an accident on the Pennsylvania rig while
employed as a floorhand/roughneck. As a result of his accident, Worker’s left pinky finger
was amputated and subsequent complications required a second surgery. Worker received
treatment for his injuries in both Pennsylvania and New Mexico. The parties stipulated that
the accident arose out of, occurred within the course and scope of, and was reasonably
incident to his employment.

{5} Worker filed a complaint in New Mexico to receive workers’ compensation benefits
under the Workers’ Compensation Act (Act). NMSA 1978, §§ 52-1-1 to -70 (1929, as
amended through 2007). Following a trial, a compensation order was entered in which the
WCJ concluded that Worker was injured in an accident that arouse out of, and during the
course of, employment with Employer, and Employer had legally sufficient notice of the
accident. However, the WCJ denied benefits to Worker, concluding that jurisdiction was
lacking under Section 52-1-64. Worker appeals.

STANDARD OF REVIEW

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{6} On appeal, the meaning and construction of a statute is subject to de novo review.
Baca v. Complete Drywall Co., 2002-NMCA-002, ¶ 12, 131 N.M. 413, 38 P.3d 181. In
addition, in a workers’ compensation case, “we apply a whole record review when assessing
whether there is substantial evidence to support the WCJ’s decision.” Gutierrez v. Intel
Corp., 2009-NMCA-106, ¶ 11, 147 N.M. 267, 219 P.3d 524. “In applying whole record
review, this Court reviews both favorable and unfavorable evidence to determine whether
there is evidence that a reasonable mind could accept as adequate to support the conclusions
reached by the fact finder.” Levario v. Ysidro Villareal Labor Agency, 120 N.M. 734, 737,
906 P.2d 266, 269 (Ct. App. 1995).

EXTRA-TERRITORIAL COVERAGE UNDER THE WORKERS’
COMPENSATION ACT

{7} Section 52-1-64 of the Act provides that under certain circumstances a worker is
entitled to workers’ compensation benefits in New Mexico, even though the injury occurs
outside of New Mexico. The statute directs:

If an employee, while working outside the territorial limits of this
state, suffers an injury on account of which the employee or, in the event of
the employee’s death, the employee’s dependents would have been entitled
to the benefits provided by the Workers’ Compensation Act . . . , had such
injury occurred within this state, the employee or, in the event of the
employee’s death resulting from the injury, the employee’s dependents shall
be entitled to the benefits provided by that act; provided that at the time of
the injury:

A. the employee’s employment is principally localized in
this state;

B. the employee is working under a contract of hire made
in this state in employment not principally localized in any state;

C. the employee is working under a contract of hire made
in this state in employment principally localized in another state whose
workers’ compensation law is not applicable to the employee’s employer;

D. the employee is working under a contract of hire made
in this state for employment outside the United States and Canada; or

E. the employee is an unpaid health professional
deployed outside this state by the department of health in response to a
request for emergency health personnel made pursuant to the Emergency
Management Assistance Compact.

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{8} At issue in this case is Subsection B. To demonstrate that New Mexico has
jurisdiction to provide compensation benefits under Subsection B, a worker must establish:
(1) while working outside the state, the worker was injured; (2) such injury would have been
compensable under the Act had it occurred within the state; (3) the contract for hire was
made within the state; and (4) the employment is not principally located within any state.
The only issue in this appeal is whether the contract for employment was made in New
Mexico.

{9} Section 52-1-64 adopted the “place-of-contract or place-of-hiring” test from 4A
Larson, Larson’s Workmen’s Compensation Law § 87.31 (1989), reorganized at 9 Larson’s
Workers’ Compensation Law § 143.03[2][a] (2008). Orcutt v. S & L Paint Contractors, Ltd.,
109 N.M. 796, 798, 791 P.2d 71, 73 (Ct. App. 1990). “Under this theory, the place where
the employment contract was made is determinative of coverage.” Id. Thus, the “place-of-
hiring” test requires an analysis of the technical requirements for contract formation,
including the manifestation of mutual assent formed by a legal offer and a legal acceptance.
Id. at 798-99. See Black’s Law Dictionary 124 (8th ed. 2004) (defining mutual assent as an
“[a]greement by both parties to a contract, [usually] in the form of offer and acceptance”).
Under this analysis, “the geographical place where the acceptance is given will control the
location of the formation of the contract.” Orcutt, 109 N.M. at 798, 791 P.2d at 73; see
Todacheene v. G & S Masonry, 116 N.M. 478, 481, 863 P.2d 1099, 1102 (Ct. App. 1993)
(applying the Orcutt rule, the workers’ compensation judge could properly conclude that the
contract of employment was formed in Arizona after finding that the worker accepted the
offer of employment in Arizona).

{10} In Orcutt, we applied the “place-of-hiring” test of Section 52-1-64. The employer
in Orcutt called the worker’s husband in New Mexico and offered employment in Nevada
to both the worker’s husband and the worker. Orcutt, 109 N.M. at 797, 791 P.2d at 72.
Husband accepted the offer made to him but he did not tell the worker of the offer because
he did not want her to work. Id. After the worker arrived in Nevada with her husband, the
employer offered employment to her directly. Id. She accepted, began working, and was
injured. Id.

{11} We applied traditional contract formation principles and held that the worker was not
hired in New Mexico, and thus, jurisdiction under Section 52-1-64 was not satisfied. Orcutt,
109 N.M. at 797-99, 791 P.2d at 72-74. We reasoned:

[T]he evidence is undisputed that worker did not find out about the offer until
she arrived in Nevada. From her testimony, it appears that worker went to
Nevada only to accompany her husband. Her plans were “to walk around”
during the day. Since she was not going to be employed by employer, her
husband had agreed to pay employer for half of the motel room. Employer
did not pay worker any travel expenses. She was not regularly employed by
employer in New Mexico. In fact, worker had never worked for employer
before. There was no evidence supporting an inference that worker’s travel

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 to Nevada was an act of “acceptance” to a known job offer made by
employer in New Mexico. It seems clear that, whether the contract of hire
is classified as unilateral or bilateral, it was formed, as a matter of law, in
Nevada.

Id. at 799, 791 P.2d at 74.

{12} Worker’s situation in the case before us is markedly different than in Orcutt. There
is no dispute that Feaster, a rig manager with the authorization to hire Worker, called from
his home in New Mexico to Worker at his home in New Mexico and offered Worker
employment. Worker accepted the offer over the phone. Worker testified that he would not
have traveled but for the job, and he traveled to Pennsylvania because the employment was
confirmed. The parties thus objectively manifested mutual assent to a contract of
employment prior to Worker’s arrival in Pennsylvania.

{13} Employer recites a number of arguments to assert that mutual assent to the contract
was not formed in New Mexico. For example, Employer maintains that while Feaster had
authority to hire Worker, he had no such authority until the drug and safety tests were
completed. However, there is no evidence in the record that Worker knew of such a
limitation. See Pope v. Gap, Inc., 1998-NMCA-103, ¶ 16, 125 N.M. 376, 961 P.2d 1283.
(“[T]he meaning attached by one party is operative when that party has no reason to know
of any different meaning attached by the other, and the other has reason to know the meaning
attached by the first party.” (internal quotation marks and citation omitted)). Based upon
the objective manifestations expressed by the parties, Worker’s belief that he was hired in
New Mexico was reasonable. See id. ¶ 13 (stating that mutual assent is based on objective
evidence and that what is operative is the objective manifestations of mutual assent by the
parties, rather than a secret intent). Employer asks this Court to draw an inference that
Worker’s prior experience with Feaster made him aware of such a policy. We decline to do
so in light of Worker’s testimony that he would not have traveled to Pennsylvania if he did
not believe he had a job with Employer. Additionally, Feaster himself did not reveal this
policy to Worker and explicitly contradicted it when asked by Worker if he had a job. To
the extent that Worker was aware of the drug and safety testing requirements, he only
testified that the requirements were necessary prior to starting work on the rig, not that they
were necessary before being hired.

{14} We also disagree with Employer that the text of the employment application negates
mutual assent to enter into an employment contract. The job application states:

I understand and agree that the omission of [sic] misrepresentation of any
fact in the EMPLOYMENT APPLICATION will be sufficient reason for
EMPLOYER to deny me employment. I also understand and agree that
should I become employed by EMPLOYER and it is later discovered I have
omitted or misrepresented any fact in this EMPLOYMENT APPLICATION,
. . . EMPLOYER may immediately terminate my employment upon

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 discovery of such omission or misrepresentation.

Initially, Employer disputes that Worker faxed an application to a Patterson office in New
Mexico prior to arriving in Pennsylvania because the application in the record does not
contain fax identification markings and is dated August 6, 2007, a date on which Worker was
in Pennsylvania. At the formal hearing, Worker testified that he was sure he completed an
application and faxed it prior to leaving Albuquerque. Whether the employment application
was completed and faxed while in New Mexico (according to Worker) or completed upon
arrival in Pennsylvania (according to Employer), the parties had already manifested their
mutual assent to a contract of employment. We disagree with Employer that the phrase, “I
also understand and agree that should I become employed” contained in the application
indicated that Worker was not yet employed. It is undisputed that Feaster orally offered
Worker employment, and Worker verbally accepted the offer on the telephone. At best, the
written application came later, and it did not alter the objective manifestation of mutual
assent at the time the oral agreement between Worker and Employer was made.

REQUIRING WORKER TO SUBMIT TO DRUG AND SAFETY TESTING UPON
ARRIVAL IN PENNSYLVANIA DID NOT AFFECT THE FORMATION OF THE
UNDERLYING EMPLOYMENT CONTRACT

{15} We have already concluded that Worker entered into an employment contract with
Employer upon his acceptance of Employer’s offer of employment in New
Mexico. We must also determine whether Worker’s subsequent drug and safety testing in
Pennsylvania constituted “conditions subsequent” to the formation of the New Mexico
contract. We asked the parties to brief this issue and referred to Bowen v. Workers’
Compensation Appeals Board, 86 Cal. Rptr. 2d 95 (Ct. App. 1999), and Shehane v. Station
Casino, 3 P.3d 551 (Kan. Ct. App. 2000).

{16} Employer notes the difficulty posed by using the terms condition subsequent and
condition precedent. “Many commentators and courts have noted the difficulty in
classifying a condition in a contract as precedent or subsequent.” Famiglietta v. Ivie-Miller
Enters., Inc., 1998-NMCA-155, ¶ 13, 126 N.M. 69, 966 P.2d 777; see Restatement (Second)
of Contracts § 224 cmt. e (2009) (abandoning the term “condition subsequent”). We have
previously explained the formal difference between the terms in K.L. Conwell Corp. v. City
of Albuquerque, 111 N.M. 125, 802 P.2d 634 (1990). A condition precedent is an event
which occurs after the formation of a valid contract and must occur before there can be a
breach of contractual duty, while a condition subsequent is an event agreed upon by the
parties that operates to discharge a party’s duty to perform after it has arisen. Id. at 129, 802
P.2d at 638. The core issue presented to us in this case is whether the testing requirement
was a prerequisite to the formation of the underlying contract, or whether the condition was
a prerequisite to a future obligation to perform under the contract. Id. This determination
is controlled by the intent of the parties. Id.

{17} We regard Bowen and Shehane persuasive to our analysis, despite their use of the

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term “condition subsequent.” In Bowen, a professional baseball player who resided in
California, was initially contacted by the Florida Marlins and offered a term of employment
over the phone. 86 Cal. Rptr. 2d at 97. The Marlins mailed a contract for the player’s
signature to his home, which he signed and forwarded to the commissioner for his signature.
Id. The contract stated that it would not become valid until the commissioner signed it,
presumably in a different state. Id. The player was later injured while playing for the
Marlins and sought recovery under California’s workers’ compensation statute. Id. The
California Workers’ Compensation Appeals Board held that it did not have jurisdiction over
the claim because it concluded the contract of hire was not made within California. Id. at
99. On appeal, the court reversed and held that the contract was formed in California
because the commissioner’s approval of the contract did not affect whether a contract was
formed by the parties. Id. at 103. It reasoned in part:

[T]he fact that there are formalities which must be subsequently attended to
with respect to such extra[-]territorial employment does not abrogate the
contract of hire or California jurisdiction. Such things as filling out formal
papers regarding the specific terms of the employment or obtaining a security
clearance from the federal government are deemed ‘conditions subsequent’
to the contract, not preventing it from initially coming into existence.

Id. at 100 (first alteration in original) (quoting St. Clair, Cal. Workers’ Compensation Law
& Practice § 2.10, 111-12 (5th ed. 1996)).

{18} A similar result was reached in Shehane. There, a performer residing in Kansas
responded to an advertisement to perform in Missouri and auditioned in Missouri. Shehane,
3 P.3d at 552. The employer then called the performer on the telephone to her home in
Kansas and offered her employment, which she subsequently accepted by calling Missouri.
Id. The employer did not tell the performer that her employment was contingent upon taking
and passing a drug test. Id. The performer received a contract in the mail at her home that
referenced a “‘pre-employment drug screening’ which was considered a ‘condition of
employment.’” Id. at 553. The performer signed the contract at her home in Kansas, then
took and passed the drug screen in Missouri, and began work. Id. She was then
subsequently injured while working in Missouri and sought workers’ compensation benefits
in Kansas. Id. On appeal, the Kansas Court of Appeals held that “[t]he drug screening was
a condition subsequent to the contract and did not prevent it from initially coming into
existence.” Id. at 555. Relying on Bowen, the court stated, “The formation or creation of the
contract in this case was complete when [the performer] accepted the offer of employment
on the telephone and further when she signed the employment contract, both events
occurring at her home in [Kansas].” Id.

{19} Both Bowen and Shehane held that the subsequent conditions did not affect formation
of the underlying contract. The conditions were only necessary in that they had to be
completed before actual employment commenced. We consider this reasoning in cases such
as the one before us, as a sound approach in applying the “place of hire” test.

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{20} Employer asks us to distinguish Worker’s case from Bowen and Shehane. Employer
first notes that the court in Bowen indicated that the employer in that case had conceded the
existence of a contract and that Employer has made no such concession in the present case.
However, we have already determined that an oral contract for employment was made in
New Mexico. Further, we are unpersuaded that California’s statutory directive to liberally
construe its workers’ compensation statute makes Bowen entirely inapplicable to our case.
Compare Bowen, 86 Cal. Rptr. 2d at 99 (holding California courts are to liberally construe
the statute in favor of workers), with NMSA 1978, § 52-5-1 (1990) (stating it is the
Legislature’s intent not to allow courts to liberally construe the statute in favor of workers).
Instead, we agree that drug and safety testing requirements after a contract or employment
is formed are conditions that, particularly in this case, do not control where the contract was
made. Employer attempts to distinguish Shehane based upon the language in its application.
As noted earlier, the language on Employer’s application is not controlling because the
parties had already entered into an oral employment contract before the written application
was completed.

{21} Employer then argues Shehane and Bowen have been distinguished by Speer v.
Sammons Trucking, 128 P.3d 984 (Kan. Ct. App. 2006). In Speer, the driver initially drove
a truck for an individual, which in turn led to work with the employer. The driver stopped
working for the employer for a period of time and contacted the employer to begin working
again. Id. at 987. The driver offered his services on specific terms over the phone while in
Kansas and, in Montana, the employer accepted the driver’s offer. The driver later took a
drug test and signed additional papers in Montana. Id. The court held that the “last act
necessary for the formation of the employment contract, [was the employer’s] acceptance
of [the driver’s] offer of employment, [which] occurred in Montana.” Id. at 991. In dicta,
the court reasoned that even if the employer’s acceptance was a counteroffer, the worker’s
subsequent drug testing was the last act necessary for the formation of the contract. We
disagree with Employer that the dicta in Speer renders the persuasive value of Bowen and
Shehane invalid. Indeed, the holding of Speer—acceptance of an offer of employment is the
last necessary act and therefore controls the location of the contract—confirms our
conclusion that Worker’s acceptance of Employer’s offer in New Mexico grants New
Mexico jurisdiction over Worker’s claim.

{22} We hold that the drug and safety testing required of Worker, after he entered into an
employment contract in New Mexico, but before he could begin working on the
Pennsylvania rig, was a condition that did not affect the formation of the underlying contract.
Worker’s understanding at the time of Employer’s offer, coupled with Employer’s objective
manifestations of assent, confirms that the employment contract was made in New Mexico.

{23} Employer has conceded that Worker suffered a compensable injury, and Employer
knew Worker was a New Mexico resident at the time he was hired. Allowing Employer to
deny paying benefits in New Mexico on jurisdictional grounds, while also allowing
Employer to litigate the claim in Pennsylvania, does not serve the purpose of assuring quick

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and efficient delivery of medical benefits to injured workers. The Legislature has instructed
us to interpret the Act “to assure the quick and efficient delivery of indemnity and medical
benefits to injured and disabled workers at a reasonable cost to the employers . . . . [The Act
is] not to be given a broad liberal construction in favor of the claimant or employee on the
one hand, nor are the rights and interests of the employer to be favored over those of the
employee on the other hand.” Section 52-5-1; see Gomez v. B.E. Harvey Gin Corp., 110
N.M. 100, 102, 792 P.2d 1143, 1145 (1990) (“Section 52-5-1 calls for a balanced and
evenhanded construction of the Workers’ Compensation Act.”). Our holding today ensures
that a New Mexico resident, hired while in New Mexico by an Employer with New Mexico
offices, is not faced with the choice of drawing upon public benefits or traveling to a foreign
state to attempt recovery from an employer who has already admitted the compensability of
the injury.

CONCLUSION

{24} Accordingly, we reverse the decision of the WCJ and remand for proceedings
consistent with this opinion.

{25} IT IS SO ORDERED.

____________________________________
MICHAEL E. VIGIL, Judge

WE CONCUR:

____________________________________
RODERICK T. KENNEDY, Judge

____________________________________
LINDA M. VANZI, Judge

Topic Index for Potter v. Patterson UTI Drilling Co., Docket No. 29,566

AE APPEAL AND ERROR
AE-SR Standard of Review

CN CONTRACTS
CN-CP Condition Precedent or Subsequent
CN-FC Formation of Contract

EL EMPLOYMENT LAW
EL-EC Employment Contract

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ST STATUTES
ST-IP Interpretation

WC WORKERS’ COMPENSATION
WC-OI Out-of-State Injury

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