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Nieves v. Hess Oil Virgin Islands Corp.

filed: May 22, 1987.

ANTONIO NIEVES AND ELLEN SCHUSTER NIEVES, APPELLANTS
v.
HESS OIL VIRGIN ISLANDS CORPORATION; SAMUEL COTTO, APPELLANT V. HESS OIL VIRGIN ISLANDS CORPORATION; JOSEPH R. TAYLOR, APPELLANT V. HESS OIL VIRGIN ISLANDS CORPORATION; GEORGE THOMAS, APPELLANT V. HESS OIL VIRGIN ISLANDS CORPORATION; PHILLIP SCOTLAND AND PEARLINE SCOTLAND V. HESS OIL VIRGIN ISLANDS CORPORATION, APPELLANT; PAULIPHY PREVOST V. HESS OIL VIRGIN ISLANDS CORPORATION, APPELLANT



On Appeal from the United States District Court of the Virgin Islands, D.C. Civil Nos. 84-336, 84-318, 84-205, 83-0093, 85-86, 84-195.

Sloviter, Stapleton and Rosenn, Circuit Judges. Stapleton, Circuit Judge, dissenting.

Author: Sloviter

Opinion OF THE COURT

SLOVITER, Circuit Judge.

The issue on appeal is whether the Virgin Islands legislature's amendment of the Virgin Islands Workmen's Compensation Act (the Act) to retroactively eliminate application of the "borrowed employee" doctrine as a bar to pending tort suits constitutes an unjustified impairment of the contractual obligations of Hess Oil Virgin Islands Corporation (Hess or HOVIC), or a violation of Hess' due process rights. Six employees of Litwin Panamerican, Inc. (Litwin) who were injured while on loan to and working for Hess filed separate tort actions against Hess. In each case, Hess moved for summary judgment on the basis of the "borrowed employee" doctrine under which workmen's compensation was the employee's exclusive remedy. In four of the cases, Hess' motions were granted. The legislature then amended the Act, and Hess' motions in the two remaining cases were denied. Appeals are before us in all six cases. Our jurisdiction rests on 28 U.S.C. §§ 1291, 1292(b).

I.

Facts

A. The "Borrowed Employee" Doctrine

In 1976, Hess and Litwin entered into an agreement, amended in 1980, whereby Litwin was to provide personnel to perform general maintenance and turnaround work at Hess' St. Croix refinery. Under the agreement, Litwin workers were divided into two classes. Employees in the class involved here, Type-I personnel, were furnished "as loanees under HOVIC's direction and control in the numbers and by skills as ordered from time to time by HOVIC." Nieves App. at 25.*fn1 Hess assumed "direct supervision, direction and control" over these employees, and Litwin was not "responsible to HOVIC or liable for the workmanship of such personnel or for any mistake, error or act of negligence of such personnel." Nieves App. at 24. Litwin was responsible for maintaining "at its own expense" Virgin Islands workmen's compensation insurance, any other statutorily required workmen's compensation insurance and employer's liability insurance against common law claims. Nieves App. at 32. With respect to Type I work, Hess agreed to "defend, indemnify and hold [Litwin] harmless from any and all loss, damage, injury, liability, claim, demand, cause of action and judgment for personal injuries or death or for damage to or loss of property . . . from any occurrence resulting from the performance of said work under this Agreement. . . ." Nieves App. at 33-34. When hiring employees to serve as Type-I employees on loan to Hess, it was Litwin's practice to have them sign a Hess loanee form. That form states:

This is to inform you of the conditions under which you will be working as a "HESS LOANEE". You should be aware that while working as a loanee:

1. HOVIC personnel will control, direct, and supervise all aspects of your work.

2. At no time should you receive, or act under instructions from Litwin Supervision.

3. HOVIC will provide you with safety equipment and will ensure that all safety conditions surrounding your work are met.

Nieves App. at 61.

George Vanterpool, originally hired by Litwin as a Type-I employee in 1976, brought suit against Hess seeking damages for injuries sustained as a result of Hess' alleged negligence while Vanterpool was on loan to Hess in 1981. At that time, the exclusive remedy provision of the Virgin Islands Workmen's Compensation Act stated:

When an employer is insured under this chapter, the right herein established to obtain compensation shall be the only remedy against the employer.

24 V.I.C. § 284 (1970). In 1984, the district court held that under the borrowed employee doctrine this section could apply to bar Vanterpool's tort action against Hess, his borrowing employer. See Vanterpool v. Hess Oil Virgin Islands Corp., 589 F. Supp. 334, 339 (D.V.I. 1984), aff'd in part and rev'd in part, 766 F.2d 117 (3d Cir. 1985), cert. denied, 474 U.S. 1059, 106 S. Ct. 801, 88 L. Ed. 2d 777 (1986). Under the common law borrowed employee doctrine:

Vanterpool v. Hess Oil Virgin Islands Corp., 766 F.2d 117, 121 (3d Cir. 1985).

The district court's holding was the first application of the borrowed employee doctrine in the Virgin Islands. In response, on October 19, 1984, the Virgin Islands legislature added to the Workmen's Compensation Act a section abrogating the borrowed employee doctrine. That section states:

It shall not be a defense to any action brought by or on behalf of an employee, that the employee at the time of his injury or death was the borrowed, loaned, or rented employee of another employer. Any oral or written agreement between an employer and employee which makes the employee the borrowed, loaned or rented employee of another employer shall be null and void as being against the public policy of this Territory.

24 V.I.C. § 263a (1986).

Although section 263a had been enacted when Vanterpool's appeal came before this court, we referred to it in a footnote only, stating that the "amendment's effect is prospective only." Vanterpool, 766 F.2d at 119 n.1. We agreed with the district court that the borrowed employee doctrine was applicable in the Virgin Islands. Id. at 121-26.

On January 23, 1986, the Virgin Islands Legislature amended the exclusive remedy provision of the Workmen's Compensation Act, adding a statement that:

The "statutory employer and borrowed servant" doctrine are not recognized in this jurisdiction, and an injured employee may sue any person responsible for his injuries other than the employer named in a certificate of Insurance issued under Section 272 of this Title.

Bill No. 498, 16th Legislature § 1(a) (1986) (to be codified at 24 V.I.C. § 284(b)), Nieves App. at 150. This provision, to be codified as 24 V.I.C. § 284(b), does not appear to be substantively different from the 1984 amendment codified as 24 V.I.C. 263a in its effect on the borrowed employee doctrine. However, the proposed addition was made applicable not only to claims filed after the effective date of the amendment but also to "claims pending as of the effective date of this Act: regardless of when the accident which gave rise to the claim occurred." Bill No. 498, 16th Legislature § 1(b) (1986), Nieves App. at 151. On February 5, 1986, the Governor of the Virgin Islands vetoed the Bill, referring to the effect of its retrospective application in the six pending cases presently before us on appeal. See Prevost v. Hess Oil Virgin Islands Corp., 640 F. Supp. 1220, 1221-22 n.2 (D.V.I. 1986). On February 27, 1986, the veto was overridden and the bill, including the retroactive application provision, became law. Id.

B. The Current Proceedings

Each of the six cases before us was brought by a borrowed employee of Hess who sued Hess for injuries allegedly caused by Hess' negligence. Each case was pending at the time the retroactive application provision became law.

Antonio Nieves was hired by Litwin on June 27, 1983, and was assigned to work at Hess as a heavy equipment mechanic. On September 28, 1983, while on loan to Hess, he fell from a cherry picker and suffered a double hernia and nerve damage in his pelvic area. He filed his complaint against Hess on December 3, 1984. On November 1, 1985, the district court granted Hess summary judgment on the ground that Nieves was "the borrowed employee of HOVIC. HOVIC is therefore immune from Nieves' suit." Nieves v. Hess Oil Virgin Islands Corp., No. 84-336, slip op. at 5 (D.V.I. Nov. 1, 1985), Nieves App. at 178.

Joseph Taylor began intermittent employment with Litwin in 1976. On April 2, 1984, after five months of continuous employment on loan to Hess, he suffered a back injury as the result of a scaffold collapse. He filed his complaint on July 11, 1984. On September 18, 1985, the district court granted Hess summary judgment on the basis of the borrowed employee doctrine. Taylor v. Hess Oil Virgin Islands Corp., No. 84-205 (D.V.I. Sep. 18, 1985), Taylor App. at 137-44.

George Thomas was a Litwin employee on loan to Hess. On March 20, 1982, while working at Hess, he suffered a back injury from a manhole cover collapse. On February 23, 1983, he filed his complaint against Hess. On September 18, 1985, the district court granted Hess summary judgment on the basis of the borrowed employee doctrine. Thomas v. Hess Oil Virgin Islands Corp., No. 83-93 (D.V.I. Sep. 18, 1985), Thomas App. at 6-16.

Samuel Cotto had worked intermittently for Litwin for several years and was hired again on May 30, 1984 to serve as a scaffolder on loan to Hess. On May 31, 1984, while on loan to Hess, he suffered back injuries from a falling pipe. On November 8, 1984, he filed his complaint against Hess. On November 1, 1985, the district court granted Hess summary judgment on the basis of the borrowed employee doctrine. Cotto v. Hess Oil Virgin Islands Corp., No. 84-318 (D.V.I. Nov. 1, 1985), Cotto App. at 129-37.

Each of the four plaintiffs moved for reconsideration under Fed. R. Civ. P. 59 in light of the legislature's addition to the Workmen's Compensation Act of section 263a. On December 12, 1985, the district court denied the motions for reconsideration in all four cases. Citing the conclusion of this court in Vanterpool, 766 F.2d at 119 n.1, that section 263a was to have prospective effect only, the court stated:

Clearly, the Third Circuit considered, as we do, that to apply the statute retroactively in litigation involving only private parties, would be a manifest injustice to one of the parties who, acting under existing law, made significant and legitimate business decisions. What the plaintiffs actually seek is to have those legitimate business decisions, legal when made, declared illegal ex post facto. That is what the effect of a retroactive application of the amendment adopted by the Virgin Islands Legislature would be.

Nieves v. Hess Oil Virgin Islands Corp., No. 84-336, slip op. at 3 (D.V.I. Dec. 12, 1985), Nieves App. at 182. Nieves, Taylor, Thomas and Cotto all appeal from the district court's grant of summary judgment to Hess and its subsequent denial of reconsideration. We have jurisdiction over their appeals under 28 U.S.C. § 1291. Our review of the grant of summary judgment is plenary.

Pauliphy Prevost and Phillip Scotland were also Litwin employees on loan to Hess when they suffered injuries. Prevost had been hired by Litwin for work as a Hess loanee 27 times since 1977. On December 5, 1983, while working at the Hess refinery, he suffered injuries as a result of inhaling hydrogen sulfide fumes. Prevost's complaint seeking damages from Hess was filed in 1984. On August 19, 1985, Hess moved for summary judgment on the basis of the borrowed employee doctrine. Prevost App. at 12-25.

Scotland was hired by Litwin as a Hess loanee in 1982. On May 23, 1983, while constructing a dock at the Hess refinery, he injured a finger. Scotland's complaint seeking damages from Hess was filed in 1985. On January 14, 1986, Hess moved for summary judgment on the basis of the borrowed employee doctrine. Scotland App. at 13-26.

The district court did not rule on Hess' motions for summary judgment in Prevost and Scotland until August 7, 1986, after the 1986 amendment of section 284 and enactment of the provision giving the newly enacted section 284(b) retroactive application. Rejecting Hess' argument that retroactive application of the amendment constituted either an unjustified impairment of contractual obligations or a violation of due process, the court applied the amendment to the actions before it, and concluded that "the borrowed employee doctrine is no longer a valid defense." Prevost v. Hess Oil Virgin Islands Corp., 640 F. Supp. at 1225. The court, therefore, denied Hess' motions for summary judgment.

Following certification by the district court pursuant to 28 U.S.C. § 1292(b) that its orders in Prevost and Scotland involved a controlling question of law as to which there is substantial ground for difference of opinion, Hess filed a petition to appeal in both cases, which this court granted. Because the matter is one of law, our standard of review is plenary.

Hess does not contest the legislature's authority to abolish the borrowed employee doctrine in the Virgin Islands. Hence the prospective application of the statutes so providing is unchallenged. Hess limits its challenge to the legislature's right to enact a provision retroactively applying the abolition of the borrowed employee doctrine to cases already in litigation. We will refer throughout to that provision, which has not been codified, as the retroactive application provision.

II. Impairment of Contract

A. The Standard

Hess contends that the retroactive application provision violates the Contract Clause of the United States Constitution, Art. I, § 10, cl. 1 ("no state shall . . . pass any . . . law impairing the Obligation of Contracts") as extended to the Virgin Islands by the Bill of Rights of the Virgin Islands Revised Organic Act of 1954, 48 U.S.C. § 1561 ("No law impairing the obligation of contracts shall be enacted").

The Supreme Court has established a three-step analysis for determining whether retroactive legislation constitutes an impairment of contractual relationship." Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 411, 103 S. Ct. 697, 74 L. Ed. 2d 569 (1983) (quoting Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244, 98 S. Ct. 2716, 57 L. Ed. 2d 727 (1978)). As part of this threshold inquiry, those parties challenging the law bear the burden of demonstrating that they in fact possess contractual rights or obligations altered by the law. Cf. National Railroad Passenger Corp. v. Atchison, Topeka & Santa Fe Railway Co., 470 U.S. 451, 472, 105 S. Ct. 1441, 84 L. Ed. 2d 432 (1985).

If the law is found to constitute a substantial impairment, the second step is to determine whether the government entity, in justification, had a "significant and legitimate public purpose behind the regulation . . . such as the remedying of a broad and general social or economic problem." Energy Reserves, 459 U.S. at 411-12. Finally, once such a legitimate public purpose is identified, the court must determine "whether the adjustment of 'the rights and responsibilities of contracting parties [is based] upon reasonable conditions and [is] of a character appropriate to the public purpose justifying [the legislation's] adoption.'" Energy Reserves, 459 U.S. at 412 (quoting United States Trust Co. v. New Jersey, 431 U.S. 1, 22, 97 S. Ct. 1505, 52 L. Ed. 2d 92 (1977)). That determination will necessarily depend upon whether the state is a party to the contract at issue. If it is not, "'as is customary in reviewing economic and social regulation, . . . courts properly defer to legislative judgment as to the necessity and reasonableness of a particular measure.'" Energy Reserves, 459 U.S. at 412-13 (quoting United States Trust, 431 U.S. at 22-23). If the state is a party to the contract, such deference is inappropriate, and the court may inquire whether a less drastic alteration of contract rights could achieve the same purpose and whether the law is reasonable in light of changed circumstances. United States Trust, 431 U.S. at 25-26, 30-32.

This court has recently applied the three-step analysis in Keystone Bituminous Coal Ass'n v. Duncan, 771 F.2d 707, 717 (3d Cir. 1985), aff'd, 480 U.S. 470, 107 S. Ct. 1232, 94 L. Ed. 2d 472 (1987); and Troy Ltd. v. Renna, 727 F.2d 287, 297 (3d Cir. 1984). We proceed to apply it to the law and contracts at issue here.

B. Substantial Impairment

Ordinarily in Contract Clause cases, the contract that is claimed to be impaired is an express contract. See, e.g., United States Trust, 431 U.S. at 14, 17-18 (covenant between New York and New Jersey and with bondholders to limit use of certain bond revenues retroactively repealed); Allied Structural Steel, 438 U.S. at 240 (state statute retroactively imposed requirements on pension fund in excess of those undertaken by terms of fund's prior contract). The only express contract which Hess claims is impaired is its agreement with Litwin under which Litwin provides employees to Hess at specified costs. However, the retroactive abolition of the borrowed employee doctrine neither alters nor affects the terms of that contract. Litwin can continue to provide Hess with borrowed employees, and thus that contract is not substantially impaired.

The absence of an express contract affected by the change does not end our inquiry because Hess argues that the retroactive amendment provision substantially impairs its implied contracts of employment with the employees borrowed from Litwin. The Supreme Court made clear in United States Trust that contract terms implied under state law are protected by the Contract Clause:

The obligations of a contract long have been regarded as including not only the express terms but also the contemporaneous state law pertaining to interpretation and enforcement. "This Court has said that 'the laws which subsist at the time and place of the making of a contract, and where it is to be performed, enter into and form a part of it, as if they were expressly referred to or incorporated in its terms.'" Home Building & Loan Assn. v. Blaisdell, 290 U.S. 398, 429-430, 54 S. Ct. 231, 78 L. Ed. 413 (1934), quoting Von Hoffman v. City of Quincy, 71 U.S. (4 Wall.) 535, 550, 18 L. Ed. 403 (1867). See also Ogden v. Saunders, 25 U.S. (12 Wheat.) 213 at 259-260, 297-298, 6 L. Ed. 606 (1827) (opinions of Washington and Thompson, JJ.). This principle presumes that contracting parties adopt the terms of their bargain in reliance on the law in effect at the time the agreement is reached.

431 U.S. at 19-20 n.17. If the Contract Clause reaches terms implied in a contract, it follows that it reaches implied contracts as well. This was the precise holding by the Supreme Court in Mississippi ex rel. Robertson v. Miller, 276 U.S. 174, 179, 48 S. Ct. 266, 72 L. Ed. 517 (1928), where the Court stated, "after services have been rendered by a public officer under a law specifying his compensation, there arises an implied contract under which he is entitled to have the amount so fixed. And ...


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