Scott v. Hydra-Walk, Inc. et al

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
)
Lukeus Scott, ) ORDER GRANTING
) DEFENDANTS’ MOTION FOR
Plaintiff, ) SUMMARY JUDGMENT
)
vs. )
) Case No. 1:18-cv-073
Hydra-Walk, Inc.; and )
Key Energy Services, Inc. d/b/a )
Hydra-Walk, Inc., )
)
Defendants. )
Before the Court is Defendants Hydra-Walk, Inc. and Key Energy Services, Inc. d/b/a
Hydra-Walk, Inc.’s motion for summary judgment filed on December 13, 2018. See Doc. No. 19.
The Plaintiff filed a response to the motion on February 1, 2019. See Doc. No. 31. The Defendants
filed a reply on February 13, 2019. See Doc. No. 34. For the reasons set forth below, the motion
for summary judgment is granted.
I. BACKGROUND
The Plaintiff, Lukeus Scott, has alleged claims for products liability/strict liability and
negligence, asserting his employer Key Energy Services, Inc. (“Key Energy”) is bound by
successor liability to answer for the design, manufacture, sale, and leasing of a Hydra-Walk
system, which he alleges was defective and unreasonably dangerous.
Hydra-Walk, Inc. (“Hydra-Walk”) designed and manufactured the Hydra-Walk pipe-
handling system which was utilized by the oil and gas industry to pick up and lay down pipe. The
Hydra-Walk system consists of a pipe-sled and ramp on a platform which is raised and lowered by
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hydraulics, all controlled by an operator who stands on the ground at the control panel of the
Hydra-Walk system and manipulates the controls.
On June 12, 2013, Key Energy employed Lukeus Scott as a Hydra-Walk system operator.
At no time was Scott employed by Hydra-Walk. On June 24, 2013, Scott sustained injuries while
working at an equipment yard near Dickinson, North Dakota. He was performing maintenance
tasks on a Hydra-Walk system when it became unstable and overturned, crushing him. As a result,
Scott alleges he sustained severe injuries to his spine, right hand, legs, and internal organs.
Key Energy was Scott’s employer at the time he suffered injuries caused by the Hydra-
Walk system. As a result of a 2008 purchase agreement, Key Energy and Hydra-Walk merged.
Key Energy is the surviving entity and Hydra-Walk ceased to exist as a separate entity. Key
Energy now owns the equipment and patents it acquired as a result of the merger with Hydra-
Walk. After the merger, the Hydra-Walk system was no longer manufactured. Key Energy
continues to provide Hydra-Walk pipe-handling services, by renting the Hydra-Walk units and
supplying the employees necessary to operate them for use on Key Energy drilling rigs as well as
competitors’ drilling rigs. The Hydra-Walk unit that injured Scott was designed, manufactured,
and sold or leased by Hydra-Walk, prior to the 2008 merger of Key Energy and Hydra-Walk. At
no time did Key Energy design or manufacture the Hydra-Walk system.
Key Energy has maintained workers compensation coverage continuously since
commencing operations in North Dakota in 1998. See Doc. Nos. 23-24. Key Energy reported
Scott’s injury to North Dakota Workforce Safety and Insurance (“WSI”) on June 25, 2013. WSI
accepted Scott’s injury claim and awarded benefits under Key Energy’s employer account to Scott.
See Doc. No. 23-7. Scott accepted WSI benefits. Scott alleges he has been unable to work since
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the accident, receiving partial wage loss payment for the past five years and continuing to this day.
As of June 12, 2018, WSI made payments on Scott’s claim in the amount of $341,537.13. See
Doc. No. 23-8. The Defendants now move for summary judgment, asserting Scott’s claims are
barred under statutory immunity.
II. STANDARD OF REVIEW
Summary judgment is appropriate when the evidence, viewed in a light most favorable to
the non-moving party, indicates that no genuine issues of material fact exist and that the moving
party is entitled to judgment as a matter of law. Davison v. City of Minneapolis, Minn., 490 F.3d
648, 654 (8th Cir. 2007); see Fed. R. Civ. P. 56(a). Summary judgment is not appropriate if there
are factual disputes that may affect the outcome of the case under the applicable substantive law.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue of material fact is genuine
if the evidence would allow a reasonable jury to return a verdict for the non-moving party. Id.
The purpose of summary judgment is to assess the evidence and determine if a trial is genuinely
necessary. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
The Court must inquire whether the evidence presents a sufficient disagreement to require
the submission of the case to a jury or whether the evidence is so one-sided that one party must
prevail as a matter of law. Diesel Mach., Inc. v. B.R. Lee Indus., Inc., 418 F.3d 820, 832 (8th Cir.
2005). The moving party bears the responsibility of informing the court of the basis for the motion
and identifying the portions of the record which demonstrate the absence of a genuine issue of
material fact. Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011). The non-
moving party may not rely merely on allegations or denials in its own pleading; rather, its response
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must set out specific facts showing a genuine issue for trial. Id.; Fed. R. Civ. P. 56(c)(1). If the
record taken as a whole and viewed in a light most favorable to the non-moving party could not
lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial and
summary judgment is appropriate. Matsushita, 475 U.S. at 587. The Court must consider the
substantive standard of proof when ruling on a motion for summary judgment. Anderson, 477
U.S. at 252. Because the Court’s authority over the claims alleged is based on diversity
jurisdiction, the substantive law of North Dakota applies. Atkinson v. McLaughlin, 462 F. Supp.
2d 1038, 1047 (D.N.D. 2006).
III. LEGAL DISCUSSION
The purpose of workforce safety and insurance law in North Dakota is to ensure certain
relief for workplace injuries, regardless of questions of fault. See N.D. Cent. Code § 65-01-01.
Thus, an employer may not employ any person in a hazardous employment without first applying
for workforce safety and insurance coverage for the protection of its employees. N.D. Cent. Code
§ 65-04-33. If the employer secures “the payment of compensation to that employer’s employees
by contributing premiums to the fund, the employee . . . do[es] not have a claim for relief against
the contributing employer . . . for damages for personal injuries, but shall look solely to the fund
for compensation.” N.D. Cent. Code § 65-01-08. Thus, when the employer is in compliance with
the workers’ compensation statutes, the employee’s exclusive remedy against the employer is
limited to recovery under the workers’ compensation statutes (the “exclusive remedy rule”). See
Smith v. Vestal, 494 N.W.2d 370, 373 (N.D. 1992); see also N.D. Cent. Code § 65-05-06 (“The
payment of compensation or other benefits by the organization [WSI] to an injured employee . . .
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are in lieu of any and all claims for relief whatsoever against the employer of the injured or
deceased employee.”). To that end, civil claims for workplace injuries are generally barred. See
N.D. Cent. Code § 65-01-01; see also N.D. Cent. Code § 65-04-28 (“Employers who comply with
the provisions of this chapter shall not be liable to respond in damages at common law or by statute
for injury to or death of any employee, wherever occurring, during the period covered by the
premiums paid into the fund.”). “The sole exception to an employer’s immunity from civil liability
under this title . . . is an action for an injury to an employee caused by an employer’s intentional
act done with the conscious purpose of inflicting the injury.” N.D. Cent. Code § 65-01-01.1.
Because Scott does not claim his injuries were intentionally caused by Key Energy, this exception
does not apply.
There is no dispute that Key Energy is a “contributing employer,” or that it was in
compliance with the workers’ compensation statutes. Key Energy has maintained workers’
compensation coverage since it first commenced operations in North Dakota in 1998, which
includes coverage for Scott. It reported Scott’s injury to WSI on June 25, 2013, the day after his
injury occurred. WSI accepted Scott’s injury claim and awarded him benefits under Key Energy’s
employer account. Scott accepted WSI benefits and has received payments from WSI. As of June
12, 2018, WSI made payments on Scott’s claim in the amount of $341,537.13. Accordingly, any
claim Scott asserts against his employer, Key Energy, is clearly barred by the exclusive remedy
rule.
North Dakota’s workers’ compensation laws, however, do not prevent the injured
employee from bringing claims against a third-party tortfeasor:
When an injury or death for which compensation is payable under provisions of
this title has been sustained under circumstances creating in some person other than
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the organization a legal liability to pay damages in respect thereto, the injured
employee, or the injured employee’s dependents may claim compensation under
this title and proceed at law to recover damages against such other person.
N.D. Cent. Code § 65-01-09. Scott argues Hydra-Walk is a third-party tortfeasor. However,
because Hydra-Walk ceased to exist as an entity due to the merger with Key Energy, it can no
longer be a party to suit. See N.D. Cent. Code § 10-19.1-102(2) (When a merger becomes
effective: “The separate existence of all constituent organizations except the surviving
organization ceases. . . . As to any corporation that was a constituent organization and is not the
surviving constituent organization, the articles of merger serve as articles of termination, and
unless previously filed, the notice of dissolution.”); see also Jones v. Billings County School Dist.
#1, 568 N.W.2d 477, 479 (N.D. 1997) (identifying limited circumstances under which suit against
a dissolved corporation is appropriate—none of which apply here).
Scott argues Key Energy assumed Hydra-Walk’s liabilities when it acquired Hydra-Walk,
including claims against Hydra-Walk for the design, manufacture, sale, and leasing of Hydra-Walk
systems. The North Dakota Supreme Court has said:
The long-established general rule is that a corporation which purchases the assets
of another corporation does not succeed to the liabilities of the selling corporation.
There are, however, four well-recognized exceptions to the general rule under
which liability may be imposed on a purchasing corporation:
. . .
2. Where the transaction amounts to a consolidation or merger of the two
corporations;
. . . .
Downtowner, Inc. v. Acrometal Products, Inc., 347 N.W.2d 118, 121 (N.D. 1984). It is undisputed
that the transaction between Key Energy and Hydra-Walk resulted in a merger of the two
corporations, with Key Energy being the surviving corporation. Key Energy does not seem to
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seriously contest the notion that it assumed the liabilities of Hydra-Walk. Further, for purposes of
summary judgment, the Court will assume, without deciding, that Scott would have had a claim
against Hydra-Walk for the design, manufacture, sale, and leasing of the Hydra-Walk system if
not for merging with Key Energy. Accordingly, the question becomes whether Key Energy is
immune from suit even if it assumed the liabilities of Hydra-Walk.
Scott contends the doctrine of dual capacity applies. Under the doctrine of dual capacity
or dual persona,
an employer normally shielded from tort liability by the exclusive remedy principle
may become liable in tort to his own employee if he occupies, in addition to his
capacity as employer, a second capacity that confers on him obligations
independent of those imposed on him as employer.
Latendresse v. Preskey, 290 N.W.2d 267, 270 (N.D. 1980) (internal citations omitted).
Latendresse is the only case cited by the parties in which the North Dakota Supreme Court has
addressed the dual capacity or dual persona doctrine. Specifically, the North Dakota Supreme
Court examined whether the doctrine of dual capacity created an exception to the exclusive remedy
provisions of North Dakota’s workers’ compensation laws. Id. at 269. The case involved an
employee suing his employer for the injuries he sustained while installing a steel pin manufactured
by the employer. Id. at 268. The employee argued his employer acted in a dual capacity, as both
employer and manufacturer, giving rise to an exception to the exclusive remedy rule. Id. at 269.
In arguing for the application of the dual capacity doctrine, the employee relied primarily upon a
California case, Douglas v. E. & J. Gallo Winery, 137 Cal. Rptr. 797 (Cal. Ct. App. 1977).
Latendresse, 290 N.W.2d at 270. In Douglas, an employee sued his employer under products
liability for the injuries he suffered when the scaffolding on which he was working collapsed.
Douglas, 137 Cal. Rptr. at 798. The court in Douglas held the employee was permitted to maintain
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the action, despite the exclusive remedy rule, because the scaffolding was manufactured by the
employer for sale to the general public, rather than for the employer’s sole use. Id. at 803.
In discussing Douglas, the North Dakota Supreme Court in Latendresse quoted Larson’s
Law of Workmen’s Compensation, which provides: “the preceding California case of Douglas . .
. [is an] unsound application[ ] of the dual-capacity concept. [It] overlook[s] the simple fact that
the use of the product was a routine and integral part of the employment. Dual capacity requires
a distinct separate legal persona, not just a separate theory of liability of the same legal person.”
Latendresse, 290 N.W.2d at 271 (quoting 2A Arthur Larson, The Law of Workmen’s
Compensation § 72.80 (1976)). The Supreme Court in Latendresse noted that even if it followed
Douglas and required the employer to have manufactured the product for sale to the public rather
than for his employer’s sole use, no evidence was presented that the steel pin involved in the
accident was manufactured for sale to the public. Id. The North Dakota Supreme Court concluded:
the [employee] failed to establish that [the employer] came within the dual capacity
doctrine, or that [the employer] acted in such a manner so as to create an exception
to the provisions of the North Dakota Workmen’s Compensation Act, Title 65,
NDCC. If we were inclined to rule in favor of [the employee] under the dual
capacity doctrine as he asserts it, we would have to disregard and do violence to
several provisions of the North Dakota Workmen’s Compensation Act which have
been set out earlier herein. We do not believe that justice will permit us to do that.
Id. at 272. The North Dakota Supreme Court affirmed the district court’s grant of summary
judgment to the employer. Id.
In 1982, the California legislature superseded Douglas by abolishing the dual capacity
doctrine. See 10 Larson’s Workers’ Compensation Law § 113.01 (2019); Cal. Lab. Code § 3602
(2018) (“The fact that either the employee or the employer also occupied another or dual capacity
prior to, or at the time of, the employee’s industrial injury shall not permit the employee or his or
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her dependents to bring an action at law for damages against the employer.”) Larson’s Workers’
Compensation Law criticizes the distinction between products manufactured by the employer
solely for its own use, and those that were also sold to the public:
For a time, both California and Ohio drew a distinction between products
manufactured by the employer solely for its own use, and those that were also sold
to the public, applying the doctrine only to the latter. The distinction made no
sense, since what mattered was that, as to this employee, the product was
manufactured as an adjunct to the business, and furnished to him solely as an
employee, not as a member of the consuming public. What the employer did with
the rest of its output could not change this central fact.
10 Larson’s Workers’ Compensation Law § 113.01 (2019). The treatise also discusses the lack of
independent obligations of the employer in Douglas:
The courts also lost sight of the fact that, even under the most permissive definition
of dual capacity, the second set of obligations must be independent of the
defendant’s obligations as an employer. Here they are completely intertwined. The
employer has a duty as employer to provide safe scaffolding; it has a duty as
manufacturer to make safe scaffolding; if it makes unsafe scaffolding and provides
it to its employee to be used in the employee’s work, the two obligations are braided
together so tightly they cannot possibly be separated.
Id. “In other words, it is not enough, as the court seems to think, that the second persona impose
additional duties. They must be totally separate from and unrelated to those of the employment.”
Id.
Latendresse is the only case cited in which the North Dakota Supreme Court has addressed
the dual capacity or dual persona doctrine, and it ultimately declined to apply the doctrine or create
an exception to the exclusive remedy rule. Further, the Douglas decision—which provided the
primary support for the dual capacity doctrine in Latendresse—has been criticized by Larson, a
leading authority on workers’ compensation, and superseded by California’s legislature.
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The Court does not believe the North Dakota Supreme Court would apply the dual capacity
doctrine given the facts of this case. The Court finds Key Energy was not acting in a dual capacity
as employer and manufacturer, because Hydra-Walk manufactured, designed, and sold or leased
the Hydra-Walk system that injured Scott, not Key Energy. Thus, Key Energy did not occupy “a
second capacity that confers on [it] obligations independent of those imposed on [it] as employer.”
See Latendresse, 290 N.W.2d at 270.
However, even if we assume that Key Energy, by taking on the obligations of Hydra-Walk
through merger, sits in the place of the manufacturer, the Court finds no exception to the exclusive
remedy rule. Scott sustained a workplace injury, as a Hydra-Walk operator, employed by Key
Energy. He did not sustain an injury as a result of his use and operation of the Hydra-Walk system
as a member of the general public. If that was the case, Scott would not have been entitled to the
workers’ compensation benefits he received under Key Energy’s employer account for the past
five years. Further, the duties, if any, imposed upon Key Energy by its merger with Hydra-Walk
are inextricably intertwined with Key Energy’s status as Scott’s employer: Key Energy has a duty
as an employer to provide safe Hydra-Walk units to operate, and (under this assumption) a duty as
manufacturer to make safe Hydra-Walk units. The Hydra-Walk unit was a “routine and integral
part” of Scott’s employment, and Key Energy’s duties, if more expansive than that of an employer,
are not unique enough to warrant deviation from North Dakota’s exclusive remedy rule.
In Barry v. Baker Elec. Co-op., Inc., the North Dakota Supreme Court stated:
We do not believe that the State of North Dakota, under the threat of criminal
sanction, intended to exact a premium for coverage . . . and at the same time, deny
the immunity to the complying employer. To exact such premium but not provide
the concomitant immunity to the employer would constitute fraud.
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354 N.W.2d 666, 673 (N.D. 1984) (emphasis added). Key Energy applied for and received
workers’ compensation coverage for Scott, as was required by statute and under the threat of
criminal sanctions. See N.D. Cent. Code § 65-04-33. Refusing to extend statutory immunity to
Key Energy under these circumstances would result in an injustice.
North Dakota’s workers’ compensation system is a legislatively-created compromise for
claims between injured workers and their employers. Fleck v. ANG Coal Gasification Co., 522
N.W.2d 445, 453 (N.D. 1994). North Dakota’s workers’ compensation statutes provide an
“exclusive, compulsory, and comprehensive program designed to compensate workers for injuries
received in the course of their employment.” U.S. Fid. & Guar. Co. v. North Dakota Workmen’s
Comp. Bureau, 275 N.W.2d 618, 620 (N.D. 1979). The North Dakota Supreme Court expressed
concern in Latendresse that application of the dual capacity doctrine would “disregard and do
violence to several provisions of the North Dakota Workmen’s Compensation Act.” The Court
agrees that adoption of the dual capacity doctrine under these circumstances would undermine the
purpose of workers’ compensation—to ensure certain relief for workers regardless of questions of
fault—and render several provisions of North Dakota’s workers’ compensation statutes
inconsequential. See, e.g., N.D. Cent. Code §§ 65-01-01, 65-01-01.1, 65-01-08, 65-04-28, and 65-
05-06. Accordingly, the Court finds the dual capacity doctrine does not apply, and the exclusive
remedy rule bars suit.
IV. CONCLUSION
For the reasons set forth above, the Defendants’ motion for summary judgment (Doc. No.
19) is GRANTED. The Defendants’ motion for hearing (Doc. No. 18) and motion to expedite
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(Doc. No. 40) are FOUND AS MOOT.
IT IS SO ORDERED.
Dated this 18th day of September, 2019.
/s/ Daniel L. Hovland
Daniel L. Hovland, Chief Judge
United States District Court
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