Supreme Court Overturns Attorney Fee Schedule

Friday, May 20, 2016 | 0

The Utah Supreme Court on Wednesday struck down its workers' compensation attorney fee schedule as unconstitutional, leaving attorneys free to charge any "reasonable" amount for their services.

Jinks Dabney

This decision from Injured Workers' Association of Utah v. State comes less than one month after the Florida Supreme Court threw out its statutory fee caps in Castellanos v. Next Door Co.

The two rulings may be the start of a trend, said Alan Pierce, president of the national Workers Injury Law and Advocacy Group.

"We are starting to see across state jurisdictions, the appellate courts recognizing the rights of 'unsophisticated litigant' injured workers to have, as the Utah court put it, access not only to a wider choice of attorneys but also of qualified attorneys," Pierce said Thursday.

While the Florida and Utah courts relied on different constitutional principles for invalidating the attorney payment schemes in each state, Pierce said everything comes down to the fact that "a fair and equitable workers’ compensation system requires balance."

Such balance is "always delicate" and "often hard to achieve," but it's lacking when states impose limits on claimants' attorney fees and not the defense, he opined. Thus, "we applaud the Utah Supreme Court in restoring a measure of balance to its compensation act," Pierce said.

Virginius "Jinks" Dabney of Dabney & Dabney, counsel for the Injured Workers' Association of Utah, said he was hopeful that the court's decision would also serve as a jumping-off point for attorneys to bring similar constitutional challenges to fee restrictions in other states.

Dabney called on "every injured-worker-friendly organization of attorneys in the other 49 states" to read Wednesday's decision and "file a complaint." He said he believed almost every jurisdiction would be vulnerable to a challenge under the Utah Supreme Court's reasoning.

The Utah Supreme Court said the separation of powers doctrine forbids state lawmakers from regulating attorney fees. The problem, the court said, was that the state Constitution has vested the Supreme Court with the exclusive power to govern the practice of law within Utah's borders, and the regulation of attorney fees falls within the judicial branch's authority.

Accordingly, Dabney said, in any state that has a constitutional provision saying its highest court oversees the practice of law within the state, "the judiciary regulates attorney fees, end of story."

But the vast majority of the states impose some type of statutory or regulatory limit on the fees that a claimants' attorney can receive, and many of them use a percentage of the claimant's recovery as the limit.

Alabama, Alaska, Arizona, Arkansas, Delaware, Georgia, Idaho, Kansas, Louisiana, Mississippi, New Hampshire, New Jersey, Oklahoma, Oregon, Rhode Island, Tennessee, Texas, Vermont, Washington, West Virginia and Wisconsin all do this.

Florida law had provided that a claimant attorney is entitled to a fee equal to 20% of the first $5,000 in benefits secured for a client, 15% of the next $5,000 secured and 10% of any amount secured in excess of $10,000. 

The problem with this arrangement, according to its Supreme Court, was the fact that Florida law allowed for no variances from those amounts.

The Florida Supreme Court said the law violated the due process rights belonging to Marvin Castellanos because it left no means to secure a reasonable fee if the statutory formula yielded a grossly inadequate level of compensation for their attorneys.

Utah's fee structure was similarly rigid, providing a fee of 25% for the first $25,000 of an award, 20% for the next $25,000 and 10% of amounts awarded in excess of $50,000, up to a maximum of $18,590.

The state didn't have a firm maximum until 1991, and Dabney said that was "the crusher" for workers. Once there was a hard limit in place, he said, it "just killed settlements," and it created a disincentive for attorneys to continue advocating on behalf of workers once the cap was reached, "driving a wedge between us and our clients."

Dabney said the claimants' bar has been complaining about the fee limits for more than 25 years but was unable to get the Utah Labor Commission to revise the fee regulations. Finally, he said, the Injured Workers' Association of Utah decided to force the commission's hand by seeking a judicial declaration that the fee limits were unconstitutional.

Initially, St. George District Court Judge John J. Walton rejected all of the association's constitutional arguments and granted summary judgment in favor of the state.

The association appealed the decision directly to the Supreme Court. On appeal, the association limited its arguments to an assertion that the fee restrictions violated principles of equal protection and the separation of powers doctrine.

The Supreme Court declined to address the equal protection argument in its decision Wednesday because it found the fee regulations invalid as a violation of the separation of powers doctrine.

The state had argued there was no separation of powers issue under the precedent set by a 1949 Utah Supreme Court case called Thatcher v. Industrial Commission.

In Thatcher, the court stated it was unaware of any power belonging to the court to regulate attorney fees, and it ultimately found it unnecessary “to determine whether the judiciary has the power to regulate or fix fees” because the Legislature had the right to do it.

But the association, through Dabney, argued that Thatcher was no longer good law because the Utah state Constitution was revised in 1985 to provide that the Supreme Court had the exclusive power to govern the practice of law within the state.

While the court on Wednesday acknowledged that the “practice of law” is "a somewhat elusive term that can be difficult to define," it “is generally acknowledged to involve the rendering of services that require the knowledge and application of legal principles to serve the interests of another with his consent."

The court said it believed it had "plenary authority to govern the practice of law," which derives from its "inherent power" as the final arbiter of legal disputes and — since 1985 — as part of its explicit and exclusive constitutional power.

Accordingly, the court concluded that the legislative delegation of authority to the Labor Commission to create a fee schedule, as well as the fee schedule itself, were "unconstitutional encroachments upon the power of the judiciary to govern the practice of law."

The court went on to say that it would not adopt a fee schedule of its own making, as it found the Utah Rules of Professional Conduct adequately safeguarded injured workers by limiting attorneys to charging only "reasonable" fees for their services.

The court said it was not persuaded that having a fee schedule "actually protects injured workers," as there was "some evidence that there are now very few attorneys willing to represent injured workers in Utah, and injured workers suffer as a result of being unable to obtain representation."

The court said it believed that "the absence of a fee schedule will allow injured workers the flexibility to negotiate appropriate fees with their attorneys," while the attorney disciplinary process would be able to keep any "unscrupulous attorneys preying upon unsophisticated injured workers" in check.

Associate Chief Justice Thomas Lee said he could not join in this portion of the court's ruling, as he did not believe the question of whether to adopt a fee schedule had been properly presented to the court for its consideration.

He said he thought the court should have only addressed the commission's authority to establish a fee schedule and that he agreed with the court's determination that the commission lacked the authority to do it.

Jaceson R. Maughan, the deputy commissioner and general counsel for the Utah Labor Commission, said Thursday that the agency believes the court's ruling "will likely have significant ramifications for the workers' compensation system in Utah," but it was "still reviewing the case and those ramifications."

Dabney said he personally thought that the commission "should be embarrassed" for having enforced an unconstitutional limit on attorney fees for 25 years. He said he also thought the agency "ought to apologize" for "having been in bed with the business industry" all this time. 

But "that's all over now," Dabney said, so "it's a new day, and a whole new ball game" for Utah comp.

To read the court's decision, click here.