Unlevel Playing Field?

Thursday, November 10, 2016 | 3

Editor's note: This is the third in a five-part series published in the Word on Workers' Compensation report, presented Saturday at the fifth annual WorkCompCentral Gala and Comp Laude Awards in Burbank.

Spending on defense and claimants’ attorney fees in Florida was about even before passage of a reform bill in 2003 that removed a requirement that claimants’ attorneys be “reasonable.” Afterward, spending on claimants’ attorneys plummeted to the point that defense attorneys are now paid nearly two-thirds of the total.

Ideally, states that cap workers' compensation attorney fees find a Goldilocks formula generous enough to ensure adequate representation for injured workers but miserly enough to protect employers from the expense of undue litigation. But appellate court decisions in Florida and Utah earlier this year showed how precarious it can be for employers and insurers to rely on any attempt by state lawmakers to find middle ground.

The Florida Supreme Court in April ruled that a statutory fee cap that limited an attorney's rate of pay to $1.53 an hour violated claimants' due-process rights.

The Utah Supreme Court in May ruled that state lawmakers have no business setting attorney fees because the state Constitution grants the judicial branch exclusive authority to regulate the legal profession.

The Florida high court's decision in Castellanos v. Next Door Co. was based on broader due-process principles that are more likely to spread to other jurisdictions. In essence, the court ruled that state lawmakers had violated claimant Marvin Castellanos' constitutional rights by passing a reform bill that removed the requirement that fees be "reasonable" and required strict adherence to the statutory formula.

The National Council on Compensation Insurance projected that the return of the mandate that attorney fees be reasonable would increase costs by 15% to 18.1% and recommended a 19.6% rate increase. Insurance Commissioner David Altmeier decided that a 14.5% increase was sufficient, with about 10% of that attributable to Castellanos.

The high court's ruling applies to all claims dating back since the statute took effect in 2003. That immediately created a $1 billion unfunded liability for workers' compensation insurers, according to an actuarial analysis by NCCI. Even before NCCI released its projection, American International Group increased its workers' compensation reserves by $109 million in reaction to the ruling.

Michael J. Winer of Tampa, one of the attorneys who represented Castellanos, said the lesson is that balance is needed when determining the appropriate level of compensation for legal services to injured workers.

"If fees are too low, justice for individual clients and the public suffers," Winer said. "But if fees are too high, the credibility of the legal system is called into question."

Different approaches

States that set no maximums at all for workers' comp attorneys are the exception, not the rule. But there's a wide variation in both methods and the amount of the caps.

Florida's statutory formula set maximum fees at a variable percentage of benefits, starting at 20% of the first $5,000 in benefits secured for a client, 15% of the next $5,000 and 10% of any amount secured in excess of $10,000.

What ran afoul of the state Constitution is the unyielding nature of those caps. The statute made no allowances for any variations.

In addition to Florida, at least 20 states limit attorney fees by a percentage of benefits awarded. The District of Columbia does, as well.

Other states set maximum hourly rates, which are sometimes coupled with a total-dollar ceiling. Some of those caps apply to claimants' attorneys only, but other states cap fees for both the claimants’ and defense attorneys.

West Virginia limits a worker's attorney fees to $125 per hour, and Vermont has a cap of $145 on fees awarded to a claimants’ attorney by a workers' compensation commissioner.

The maximum hourly rate for claimants' attorneys in North Dakota is $150, but attorneys are also subject to a series of caps on their total compensation depending on how far a case is litigated. If a matter makes it all the way to the state Supreme Court, a North Dakota attorney can recover a fee of no more than $11,300.

Texas caps hourly fees at $150 for both sides of bar, but the Division of Workers' Compensation has proposed a rule change that will increase the maximum to $200 per hour, on Jan. 1. That will mark the first increase since the fee caps were adopted 25 years ago.

Not all fee caps are tied to disability benefit awards. According to the Workers' Compensation Research Institute, Colorado,

Minnesota, New Hampshire, Oregon and Tennessee have provisions to allow a fee for an attorney in "medical-only" disputes — but Arkansas, Oklahoma, Georgia and Maryland generally prohibit an attorney from getting a fee based on medical benefits or services.

Happy campers

Other states have kept workers' comp attorneys relatively happy by allowing fees beyond a fixed percentage of benefits for complex cases, or simply by capping fees at a higher percentage of benefits.

Illinois limits attorneys who represent injured workers to a fee equal to 20% of the client's recovery, up to an amount equal to 20% of the value of 364 weeks of permanent total disability payments. However, Illinois attorneys can petition an arbitrator or the Workers' Compensation Commission for a fee in excess of the 364-week fee cap, and it's "not unusual" for attorneys to do so, said Marc Perper, a claimants' attorney and partner with Horwitz, Horwitz & Associates in Chicago.

As the standard Illinois fee agreement provides for a 20% contingent fee, Perper said he believes that the best practice for an attorney wishing to charge a fee in excess of 20% is to enter into a written agreement with the client setting forth the fee percentage for which the attorney ultimately intends to seek approval.

In his experience, Perper said, "more often than not," the fee petitions are granted, particularly where the client has no objection to the increased fee.

Given the leniency of the cap, Perper said he had "no serious complaints" with it.

On the defense side, Jason Kolecke of Hennessy & Roach, and Mark Cosimini of Rusin, Maciorowski & Friedman, both said the 20% cap hasn't been a controversial or contentious issue in any of their cases, and they haven't heard any grumbling about it from opposing counsel.

In Pennsylvania, too, workers' comp attorneys say they've heard few complaints about the the state's hard cap on attorney fees at 20% of benefits secured, which state lawmakers enacted in 2006.

That change withstood a constitutional challenge in 2011. Pennsylvania Workers' Compensation Judge David Torrey said the hard cap that has existed since then doesn't seem to be a sore spot for attorneys.

Larry Chaban, a past chairman of the Pennsylvania Bar Association Workers' Compensation Section and a claimants' attorney with the Alpern Schubert law firm in Pittsburgh, said adoption of an absolute ceiling really hasn't been a big deal because most attorneys never tried to claim a fee in excess of 20%.

Vincent Quatrini, a claimants' attorney with Quatrini Rafferty in Greensburg, said Pennsylvania's fee structure generally produces enough income for attorneys to recoup the money they invested on cases they don't win, and allows them the "luxury" of being able to take on cases that may not provide a "good fee, but can make good law."

In Ohio, fees are capped at 33.33% of a worker's award from the Industrial Commission, according to Philip Fulton, a claimants' attorney and author of the "Ohio Workers' Compensation Law" treatise.

While this is a larger percentage than what's allowed in most other states, Fulton said the amount of the awards workers get generally are not very large because most injured workers do not get sizable awards. He said attorneys "either have to do a very high-volume practice, or other types of law," to make ends meet.

Legislature vs. judiciary

Michael C. Duff, vice chairman of the Workers’ Compensation Committee of the American Bar Association’s Tort Trial and Insurance Practice Section and a professor at the University of Wyoming College of Law, said regulating the workers' comp system is tricky because the system involves participation of all three branches of government. That necessarily creates some "ambiguity with respect to separations of power."

With Utah now a notable exception, Duff said state legislatures are generally free to "do just about anything they want," as long as they aren't "intermeddling with fundamental rights" and have a "rational basis" for their actions.

In many states, Duff said, lawmakers decided to "make it harder for claimants to have access to attorneys" because of a belief that "attorney involvement increases the expense of claims." Often those controls are based on a percentage of benefits, which invariably causes lawyers to overlook cases that don't involve large disability benefit awards.

Duff said he didn't enjoy working under a fee schedule when he was in private practice as a claimants' attorney in Maine from 1995 to 1997.

"I was unable to provide representation in many cases striking me as clearly meritorious," he said.

Still, Duff said he likes Wyoming's approach to attorney fees. It has a monopoly state Workers’ Compensation Fund that pays a flat fee of $150 per hour to a claimants' attorney, regardless of the outcome of the case. Defense attorneys have the same cap on their fees.

Duff acknowledged such a program would be "a political non-starter" in many other states. He said the next best thing would be to have a fee schedule set by the legislature, with allowances for an attorney to petition a court for a higher fee for exceptionally complex cases.

The problem, said Duff, is that legislatures sometimes stray too far toward cost containment and away from ensuring adequate representation.

Duff said the problem for Florida was that the Legislature established a fee schedule that made no recognition of differences in the difficulty of cases, and "represented an attempt by the Legislature to assume plenary control of attorney fees."

Duff said that it'd be more likely for the type of analysis done by the Florida court to spread to other jurisdictions than the Utah Supreme Court's reasoning, as the outcome of the Utah case turned on the fact that the state had a constitutional provision placing the practice of law under the supervision of the judiciary.

He said he didn't think this means lawmakers would "give up on fee schedules," and his hope is that the schedules "will be closely supervised by the judicial branch."

But, he cautioned, "anytime a legislature tries to wrest complete control over a subject, it's going to get a judicial response."

Trouble spots

Around the country, attorneys are working to make sure the judicial branch keeps a close eye.

Even though Florida attorneys won a victory with the high court's ruling that their fees must be reasonable, legal battles over work comp attorney fees continue.

In August, the Florida 1st District Court of Appeal ruled in Miles v. City of Edgewater that limiting a worker's ability to retain counsel under a contract that provides for the payment of a reasonable fee for the attorney's services violates the worker's constitutionally guaranteed right to free speech, freedom of association and right to petition for redress.

The decision "creates an absolute right of worker to contract for representation at an hourly rate" in Florida, and it could be persuasive precedent for challenging a the law in "any state that has fees tied exclusively to a fee schedule and restricts the ability of a worker to go out and hire an attorney on an hourly basis," said attorney Geoff Bichler of Bichler, Kelley, Oliver & Longo in Maitland. He represented Martha Miles in the case before the appellate court, along with Winer, who is mentioned above.

In Texas, where state regulators have proposed to tack an extra 33% onto hourly fees and bring the hourly rate to $200, some attorneys are still demanding greater flexibility to ensure that injured workers are not left without an advocate.

Texas attorney Brad McClellan, of counsel for the Law Offices of Richard Pena in Austin, has two cases pending at the district court in Travis County in which he is arguing that the failure to provide for an attorney fee in medical-only disputes is unconstitutional.

In Dixon v. TDI, and FedEx v. Trejo, McClellan is seeking a declaratory judgment that the inability of an attorney to get a fee in medical treatment disputes violate the rights guaranteed by Article 1, Section 13, of the Texas Constitution. This provision requires that courts "be open" for every person to seek a remedy "for an injury done him."

McClellan is arguing this section "includes at least three separate constitutional rights: 1) courts must actually be operating and available; 2) the Legislature cannot impede access to the courts through unreasonable financial barriers; and 3) meaningful remedies must be afforded.

McClellan said the way the Texas attorney fee limit is written, the only way an attorney can get paid is by taking a chunk of a worker's award of indemnity benefits. If there are no indemnity benefits in dispute, then there's no potential fee for the attorney, he explained. The worker can't offer to pay an hourly fee either, since the statute expressly limits fees to 25% of indemnity, McClellan said.

The end result, he said, is that workers in medical-only cases "go pro se, and they usually lose."

McClellan said he also dislikes the idea that fees come out of a claimant's recovery when there is an indemnity award.

"When were taking about a limited recovery to begin with," and a worker "already can't pay his bills and things," McClellan contended "it's just not right" to have an attorney taking money away from the worker.

With the absence of a bad faith claim in Texas, he said carriers can wrongfully deny a claim without fear or reprisal, and when a worker challenges this action, the attorney fee serves as "a penalty, basically, for being right."

McClellan said he thought that the rule should be that any time a carrier disputes a claim, it should be liable for the claimant's reasonable attorney fees.

"That would bring a little more attorney representation into the Texas comp system, and it wouldn't penalize the worker for prevailing," he said.

On the other hand, Texas has an Office of Injured Employee Counsel that can handle complex cases with low value that private attorneys don't want to take, points out Trey Gillespie, senior workers' compensation director for the Property Casualty Insurers Association of America.

Several states — including Kansas, Maine, Minnesota, Missouri, Nevada, New Hampshire, New Mexico, New York, Oregon, North Dakota, South Carolina, Tennessee and Washington — also provide injured workers with the assistance of ombudsmen or public advocates, free of charge.

Gillespie said the Texas OIEC provides workers with "competent and qualified representation" at no cost. And for that reason, he doesn't think Texas is as vulnerable to the type of constitutional challenges that rattled Florida this year.

Free markets

Some states stay completely out of fee-setting business for workers' comp attorneys. Laws in Connecticut, Hawaii, Maryland, Montana, North Carolina, New York, Oregon, South Carolina and Virginia require only that attorney fees be reasonable.

Nebraska attorney Roger Moore, of Rehm, Bennett & Moore in Lincoln, said a comp system needs to give workers the ability to hire an attorney under a contingent fee arrangement. A cap on fees — as either a percentage of recovery or a dollar amount, "forces attorneys to take a very restrictive view of cases," he said.

Moore said he believes most claimants' attorneys in Nebraska take a contingent fee "in the one-third range." He said he wasn't aware of anyone who tried to take more.

John C. Fowles, a fellow Nebraskan and claimants' attorney with the Fowles Law Office, said he generally sees agreements in the 25% to 33.3% range.

He said the Workers' Compensation Court is "not overly difficult about fees" that stay within those parameters. He said he never heard of an instance where the court told anyone, "Your fee is not appropriate."

But the lack of fee controls still doesn't mean that claimants always get representation. Fowles said he has turned away potential clients with low-value indemnity claims because it was unlikely his fee would be enough to offset his investment of time.

Missouri regulators keep their hands off attorney fees as well, as long as a hearing officer deems the fees reasonable. Martin Klug, a defense attorney with Huck, Howe & Tobin in St. Louis, said "as a matter of custom, fees are typically 25% of a worker's recovery."

He said that custom probably serves as a disincentive for attorneys to take low-value claims. Workers tend to "lawyer up on big cases and go pro se on smaller ones," he said.

California also has a requirement that attorney fees be "reasonable," in light of the responsibility assumed by the attorney, the care exercised in litigating the case, the time spent by the attorney and the results obtained.

California defense attorney Tim Kinsey of Grancell, Stander, Reubens, Thomas & Kinsey said that from what he's seen, most workers' compensation judges treat 15% as meeting the state's "reasonable" standard, and his opponents do not complain about this.

He said he believed the percentage tends to stay low so it "won't preclude a worker from getting an attorney" and so the worker's recovery "won't be substantially reduced" by the attorney's fee.

Alan Gurvey of Rowen, Gurvey & Win in Sherman Oaks, California, said fees present a conundrum for the attorneys, like him, who represent injured workers.

"The system says that we are entitled to a percentage of their recovery and of their benefits, but many of my clients need the money and it is hard to justify taking more money from them," he said.

Gurvey said it's possible to get a fee above 15% in cases involving claims involving retaliation, employer misconduct or penalties, but the amount usually has to be included in a retainer agreement signed by the worker when the attorney is hired.

Most of the time, the 15% mark is the "de facto" ceiling, he said, and attorneys very rarely ask for more, as the extra money "would come from the applicant's pocket."