Supreme Court Reverses SORM v. Martinez – Defines an “Issue” for Practitioners and Stakeholders

The Texas Supreme Court has reversed the San Antonio Court of Appeals in a case that deals with an important procedural question: “what is an issue for purposes of a workers’ compensation suit for judicial review?” In a December 15, 2017 ruling, the Court concluded that an “issue” is not an “argument” or any underlying fact findings that the Administrative Law Judge may make in connection with a decision in the case.

In State Office of Risk Management v. Martinez, (No. 16-0337) the Court rejected Martinez’ contention that the carrier (the State Office of Risk Management) was prevented from raising an argument to explain why her claim was not compensable, when that argument had not first been made before the Division of Workers’ Compensation.

Edna Martinez was employed as a Child Protective Services Specialist II with the Texas Department of Public and Regulatory Services. On Saturday, June 9, 2001, Martinez was injured when she fell in the kitchen and dining area of her own home. Martinez reported the injury to her employer and filed a claim for workers’ compensation benefits.
After Martinez made the claim, her employer filled out an initial accident report stating, in part, “unknown if accident happened in work area.” Martinez reported that she believed her injuries occurred as a result of slipping on moisture on her kitchen floor Martinez’s fall occurred away from her office, on premises not controlled by her employer. Martinez’ claim was disputed by the State Office of Risk Management, which administers claims reported by state employees.

At a CCH, the issues presented were 1.) Did the Claimant sustain a compensable injury on June 9, 2001; and 2.) Did the Claimant sustain disability as the result of the June 9, 2001, claimed injury, and if so, for what period(s)? At the CCH, SORM argued that Martinez violated a rule of the employer because she was working at home on the weekend without prior permission, a violation of her employer’s employment policies.

The ALJ found that Martinez did not sustain a compensable injury, and because she did not sustain a compensable injury she did not have disability. The Appeals Panel reversed the ALJ and rendered a decision that Martinez was injured while in the course and scope of her employment. SORM sought judicial review on the same two issues. Subsequently, SORM filed a Motion for Summary Judgment based upon the argument that a compensable injury is precluded because Martinez specifically violated Texas Government Code § 658.010 and § 659.018, which regulates State employee work hours, including the location of where work may be performed. The court of appeals decision held that SORM failed to raise this argument at the administrative level and was, therefore, precluded from raising it for the first time on judicial review. Martinez v. State Office of Risk Mgmt., No. 04-14- 00558-CV, 2016 WL 548115 (Tex. App.—San Antonio, February 10, 2016) (mem. op.). One judge filed a concurring and dissenting opinion. Both SORM and Martinez sought review by the Supreme Court.

On appeal, the Texas Supreme Court sided with SORM and rejected Martinez’ arguments.

The Labor Code limits the trial court’s judicial review to those “issues decided by the appeals panel.” TEX. LAB. CODE § 410.302(b). As the court of appeals noted, a split exists in the appellate courts “on whether the term ‘issues’ encompasses each factual finding of a hearing officer at a contested case hearing, thereby requiring a party to appeal each adverse factual finding to avoid forfeiture of judicial review.” See ___ S.W.3d at ___ (first citing Zurich Am. Ins. Co. v. Dehose, No. 01-13-00344-CV, 2014 WL 3512769, at *8–11 (Tex. App.—Houston [1st Dist.] July 15, 2014, pet. denied) (mem. op.); and then citing Lopez v. Zenith Ins. Co., 229 S.W.3d 775, 778– 79 (Tex. App.—Eastland 2007, pet. denied)).

Within the administrative review process, the hearing officer must determine whether benefits are due and must issue a decision that includes findings of fact as well as conclusions of law. TEX. LAB. CODE § 410.168(a). To appeal the officer’s decision to the appeals panel, the appealing party must rebut “the decision of the [hearing officer] on each issue on which review is sought.” Id. § 410.202(c). The appeals panel’s decision may include a discussion of “errors at the contested case hearing” including “findings of fact for which insufficient evidence exists” and “findings of fact or conclusions of law regarding matters that were not properly before the [hearing officer].” Id. § 410.204(a-1)(3)(a), (c). Then, on judicial review, the Labor Code limits the de novo trial to “issues decided by the appeals panel.” Id. § 410.302(b).

The Labor Code makes clear that a hearing officer’s incorrect findings of fact are “errors” but not “issues.” While issues require individual appeal, errors do not. See id. § 410.202(c). Accordingly, a party need not appeal every finding related to an issue in order to preserve the issue for judicial review. Because the trial court conducts review under the modified de novo standard, there is no requirement that it defer to the hearing officer’s factual findings. Thus, a party’s failure to challenge a factual finding does not preclude a trial court from reviewing the issue that the finding purportedly supports.

Consequently, even if the hearing officer’s report did establish that Martinez was in the “course and scope of employment” when she fell, the officer’s ultimate conclusions that Martinez “did not sustain a compensable injury” and “did not have [a] disability” are the only issues either party could have appealed. The officer resolved these issues in SORM’s favor. As a result, on judicial review, SORM remained free to present arguments relating to both elements of compensability (i.e., that an injury must “arise” out of the “course and scope” of employment). See id. § 401.011(10).

The Texas workers’ compensation system is an issue-driven system. When a dispute is raised by the parties, the Division’s jurisdiction – the power of the agency to decide the dispute – is limited to the issue that the dispute involves. This decision resolves a conflict that existed among the lower appellate courts over what “issues” could be heard on judicial review by concluding that a trial court has authority to consider every argument that might support a party’s position on a particular issue, even if that argument is a new one that was not made when the case was pending before the Division.