Parties in Anguizola SB 1160 Lawsuit Respond to Judge's Due Process Concerns

Wednesday, August 16, 2017 | 0

When U.S. District Court Judge George H. Wu said last month that he was "inclined" to block enforcement of a law freezing liens of providers charged with fraud, he asked the state to provide more information about how the accused could challenge the law's application in court. 

Judge George Wu

If the California Division of Workers' Compensation could prove that providers have the opportunity to argue in court that Labor Code Section 4615 does not apply to their liens, that could help alleviate Wu's concerns about the law depriving them of their opportunity to be heard.

Last week, the DWC filed a brief describing how the application of Section 4615 to a provider's lien plays out in practice. The agency also filed a declaration by its chief judge, Paige Levy, describing how she has advised more than 160 administrative law judges she oversees to apply Section 4615.

On Tuesday, the plaintiffs in the lawsuit challenging the constitutionality of the Labor Code section created by Senate Bill 1160 submitted a brief of their own, saying the DWC's filing "further exposes the constitutional failures created on the face of Labor Code 4615."

Wu will consider the parties' arguments during an Aug. 24 hearing at the federal courthouse in Los Angeles. 

The DWC's argument

Section 4615(a) states that "any lien filed by or on behalf of a physician or provider of medical treatment services under Section 4600 or medical-legal services under Section 4621, and any accrual of interest related to the lien, shall be automatically stayed upon the filing of criminal charges against that physician or provider for an offense involving fraud against the workers’ compensation system, medical billing fraud, insurance fraud, or fraud against the Medicare or Medi-Cal programs."

The language indicating that the stay would be "automatic" confused administrative law judges and angered providers, who argued — as Dr. Eduardo Anguizola did in his lawsuit — that an automatic stay would deprive them of their right to litigate their lien. 

Many questions lingered: How would liens be identified as "filed by or on behalf of" a charged provider? If an administrator flagged a lien on the DWC's electronic case management system as linked to a charged provider, did that constitute a judicial determination that the lien would be stayed? Would hearing representatives have a chance to argue before a workers' compensation judge that Section 4615 did not apply to the lien they were attempting to have paid?

Levy addressed those questions in her declaration. She said she anticipated the initial confusion — "there is always a learning curve… with new statutory provisions" — and worked to create procedures for applying Section 4615 after the legislation went into effect Jan. 1.

Determinations of which liens were affected by Section 4615 began when DWC Acting Administrative Director George Parisotto posted to the division's website a list of providers who had been charged with fraud-related crimes. DWC staff then worked to identify the liens pending in the workers' compensation system that were "filed by or on behalf of" those providers. When they identified one such lien, they would flag it in the Electronic Adjudication Management System.

A flag does not constitute a judicial determination that a lien is stayed, Levy said.  

"The flagging of liens as 'stayed' within EAMS is just for information purposes, to alert judges and parties that a lien may be subject to a stay," Levy said.

Hearings can still be held on liens that have been flagged as "stayed," but administrative law judges must decide whether the stay applies, after hearing arguments from both sides. If the judge finds that the lien falls under the parameters outlined in Section 4615, it will be stayed. 

Levy began instructing ALJs in March to address liens that had been flagged in EAMS as potentially affected by the stay on a case-by-case basis. 

"Commencing in my March conference call with the presiding judges … and continuing in the April, May and June meetings, I instructed the presiding judges that issues concerning the applicability of the Section 4615 stay to any particular lien in an individual case should be heard by WCALJs, under usual procedures, and adjudicated based on the language of the statute and the facts and circumstances of each case," Levy said. 

Levy attached to her declaration 14 court documents from proceedings involving Section 4615 determinations so Wu could see how the adjudication played out in each case. 

In July, Wu had asked the DWC, "Does the the stay prevent charged lien holders from appearing and participating in lien conferences and lien trials?"

On Page 24 of its brief, DWC responded, "Section 4615 does not prevent charged providers and lien claimants from appearing and participating in lien conferences and lien trials, or in any other type of proceeding in the case, but it does prevent the WCALJ from adjudicating a lien that is determined to be stayed under the provisions of the statute.

"WCALJs may adjudicate issues concerning the applicability of Section 4615 to a particular lien, lien claimant, provider, etc., i.e., determine whether the statute applies," the agency continued. "If a lien is determined to be stayed under the provisions of the statute, no further adjudication as to the merits of the lien would be proper and the lien would remain stayed pending the disposition of the criminal charges."

The plaintiffs' argument

In a heated response, attorneys for Anguizola wrote that SB 1160's lien-stay provision erects an unnecessary roadblock to the successful adjudication of liens. They said it is unnecessary as a fraud-fighting tool, because defense attorneys had a right to argue that liens were fraudulent during lien hearings before SB 1160.

Striking down Section 4615 would "end the chaos — for the state, providers, lien claimants, WCAB (Workers' Compensation Appeals Board) judges and patients — that has been caused by Section 4615 while leaving intact the longstanding right of applicants, insurers and employers to address fraud," the plaintiffs' side wrote. 

"Parties remain able to address and prevent fraud by arguing before the WCAB judges that specific liens result from fraud and should not be paid," the attorneys continued. "In the absence of Section 4615, a WCAB judge can exercise his or her full power to adjudicate such claims (a power effectively divested from them by Section 4615, as confirmed by Judge Levy’s declaration) and deny payment based on a fraud defense."

The attorneys speculated that Levy had violated the California Code of Judicial Ethics by making comments in her declaration that, in their opinion, went further than "explaining the procedures of the court." They said that Levy had engaged in "prohibited public comment" by making statements such as "In practical terms, liens are always 'stayed' in every workers' compensation case until the underlying case is resolved." 

The plaintiffs' side said that it could file a motion to strike Levy's declaration from the record but did not want to "pepper the court with more paper." 

The plaintiffs wrote that the lien-stay provision is unconstitutional because it stays liens by charged providers regardless of whether the lien itself is connected to fraud. Even if lien claimants have the opportunity to argue that their lien does not qualify for the stay, they do not have the opportunity to argue that it is not fraudulent, if it is found to qualify, the attorneys wrote. 

"The court asked the state what avenue or procedures are available to a provider to argue that a lien should not be stayed, that a lien does not arise from fraud, or that the provider (or lien claimant) has been improperly stayed," the plaintiffs' attorneys wrote. "The simple answer to this question is that no such procedure or avenue exists under either the statute or any other rules and regulations."

Last month, Wu said in a tentative decision that he may issue an injunction prohibiting the DWC from enforcing the lien stay provision. The judge said he had "serious concerns" about due process violations and asked the state for additional briefing on how a provider can challenge the staying of a lien.

“If defendants cannot prove to the court that the statute provides a charged lien holder with an opportunity to be heard to challenge Section 4615’s application to his or her liens, the court would be inclined to grant plaintiffs’ injunction on procedural due process grounds,” Wu said.

The hearing on the due process question will begin at 8:30 a.m. Aug. 24 in Courtroom D of the federal courthouse in Los Angeles, located at 350 W. 1st St.