The Intersection of Takings and Workers' Comp: A Unique Perspective

Wednesday, November 20, 2013 | 0

How do lien-activation fees fit within the intersecting worlds of takings and workers’ compensation? Simple: they don’t.

Before I took over Jon Brissman’s lien-litigation practice, I was a partner at the largest law firm in California specializing in public entity law. In particular, I was a partner in the Eminent Domain Group at Best Best & Krieger, LLP. In that capacity, I worked on countless projects where local public agencies exercised their power of eminent domain, i.e., acquiring private property for a public purpose under the Takings Clause of the U.S. Constitution. Inverse condemnation or takings, which was, until recently, one of the grounds for challenging lien-activation fees in Angelloti et al. v. Baker et al., is the flip side of eminent domain. Instead of the government bringing an action to force a sale, an aggrieved property owner brings an inverse condemnation action when the government will not bring an action, either because the agency is not ready to, or as is the case in Angelloti, the agency does not believe it has taken anyone’s property.
 
That puts me in the unique position of understanding both the workers’ compensation world and the takings world, and how lien-activation fees fail to fit within these intersecting worlds.
 
Plaintiffs in Angelloti are challenging the provisions of SB 863 requiring activation fees and allowing for dismissal of all liens filed prior to 2013 on Dec. 31, 2013, by operation of law if no activation fee of $100 is paid by that date (Labor Code Section 4903.06). The challenge did not include the provisions requiring the mandatory filing fee of $150 for any lien filed on or after Jan. 1, 2013. Strategically, this makes sense since the automatic dismissal is probably the most obvious and most drastic recourse implemented by the Legislature to fund a system that is spiraling out of control financially. The activation and filing fees apply only to a limited group of lien claimants.

The challenges raised in Angelloti were threefold: a takings claim, a due-process challenge, and an equal-protection challenge. Defendants, including the state, brought a motion to dismiss all three challenges. In return, plaintiffs sought a preliminary injunction to stop the automatic dismissal. Earlier this month, the Honorable Judge George Wu heard oral arguments on both motions. 

In a tentative decision provided to the parties immediately before the hearing on Nov. 4, 2013, Judge Wu explained that he was inclined to grant the Defendants’ motion to dismiss with respect to the takings claim and the due-process challenge, but that the equal-protection challenge may have some merits. He also indicated that he was inclined to grant a preliminary injunction on that basis (i.e., the application of the activation fees to some classes of lien claimants and not to others). After lengthy arguments before a courtroom full of observers, Judge Wu asked the parties to return three days later. He asked for limited supplemental briefing in the interim.
 
On Thursday, Nov. 7, Judge Wu indicated that he was inclined to issue a final order in line with his tentative decision and asked the parties to submit language related to the scope of the injunction by Tuesday, Nov. 12. He also indicated that he could be persuaded to apply the injunction statewide, rather than to just the plaintiffs in the action. At the request of the defense, Judge Wu agreed to make his order effective one week later to allow the State time to make changes to its electronic filing website, which is used by lien claimants to pay the challenged fees.
 
While I am pleased with the order, I am concerned that the takings claim was dismissed, without leave to amend. Should the plaintiffs ultimately prevail on the equal-protection claim, arguably, the state can still force the payment of activation fees simply by requiring all lien claimants to pay up, rather than just one class of claimants. 

Similarly, even if the due-process claim had not been dismissed and plaintiffs ultimately prevailed on that claim, the state could fix whatever flaws were noted by the court. A victory on a takings claim, however, would have virtually guaranteed that there could be no legislative fix, especially in this context. Either the activation fees can be charged or they cannot be. In other words, either liens are a property interest, or they are not.  There is no way to legislate a middle ground. Moreover, if the activation fees were deemed a taking, nothing short of returning the already paid fees, reinstituting liens already dismissed for failure to pay and stopping the continued collection of fees/dismissals could be an adequate remedy. 

A victory on the takings claim would also have had the domino effect of stopping the lien-filing fees that became effective on Jan. 1, 2013.  The same rationale was applied in requiring the filing fees, and the same rationale would apply in barring them as an unconstitutional taking. 

Unfortunately, the focus of the takings claim in the Angelloti case became misguided. There is legitimacy in the rationale applied by Justice Wu with respect to the takings claim, but that’s because the focus appeared to be on those liens where a claimant may or may not get paid. Such an analysis misses the point, but even under that analysis, the takings claim should have withstood a motion to dismiss. There is an ownership value in the expectation itself. The U.S. Supreme Court previously held that the possibility of a taking exists when investment-backed expectations are taken (Penn Central Transp. Co. v. New York City, 438 U.S. 104 (1978).). The very fitting analogy used by plaintiffs during oral arguments went something like this: Assume a person holds tickets to Game Seven of the World Series. It is completely possible that Game Seven may never happen, but does that make an owner’s interest in the tickets any less of an ownership interest? It does not. The fact that Game Seven may never be played affects the value of the tickets, not the fact of ownership interest. Similarly, the fact that a lien may never get paid affects its value, not its status as a property interest.

More to the point, what about those liens where payment is an absolute entitlement, such as med-legal liens or liens with contractual underpinnings (i.e., interpreter liens for services at a hearing)? In those instances, there is no guesswork involved. The question really is "When will the lien claimant get paid?" not "whether the lien claimant will get paid." Moreover, especially in those situations, lien claimants have no other remedies. A med-legal provider cannot seek recovery outside the WCAB. Effectively, without the takings claim, it is very possible that their ultimate choice could be to pay to play or forgo an absolute right. 

This is true even for services provided in 2013 and later. Despite the new rules requiring the filing of a petition for determination of a non-IBR dispute, a med-legal provider may still be forced to file a lien if the court, at its discretion, defers deciding the dispute until the case in chief resolves. In such instances, a med-legal provider must still file a lien or risk having recovery barred by the new, shorter statute of limitations. 

It is hard to imagine that the Legislature had this result in mind when SB 863 was implemented. In fact, one could argue that many provisions are contrary to the legislative intent behind the workers’ compensation system itself. For example, one purpose behind the workers' compensation system is to ensure that injured workers obtain the medically necessary and reasonable care that they need. Common sense tells us that if doctors have to pay out of pocket in order to get paid for making a determination as to medical reasonableness and necessity, we are going to lose providers qualified to make such an assessment. That, in turn, will have its own set of unintended consequences.

When Jon and I first spoke about me acquiring his practice, plaintiffs had just filed Angelloti. I had little experience with workers’ compensation at that time, and like many civil litigators, especially from large firms, I thought workers’ compensation work was easy work with no special skills necessary. Those early conversations with Jon quickly proved to me that workers’ compensation is a complex world where case law, codes and regulations are intertwined and weave a complex web of legal rules and processes that often don’t make sense and have unintended consequences.
 
In the months since entering the workers’ compensation world, I have immersed myself into the nuances (and the stairways to nowhere) of SB 863. Like most everyone else, I found SB 863 well-intentioned, but convoluted and impractical. Not having the blinders of prior knowledge, I was able to analyze SB 863 and its prodigy regulations with "fresh eyes." Unfortunately, in this particularly complicated and specialized area of law, it is difficult to predict what will happen next, but one thing is for sure: the Angelloti case makes clear that SB 863 has serious problems. It is likely that more challenges are to follow – such as to the IMR and the IBR processes. And with each challenge, it is evident that SB8 63 will end up costing the cash-strapped system even more money, rather than saving it money. 

Mona Nemat is a partner at the Law Office of Brissman & Nemat, where she specializes in assisting providers with workers’ compensation-related issues.