Liens for Costs in 2013

Tuesday, April 9, 2013 | 1

On Jan. 1, 2013, the lien filing and lien activation fees of newly enacted Labor Code Sections 4903.05 and 4903.06 took effect. Anyone familiar with California lien practice knows that fees have had a tremendous impact, and that providers do well to avoid them if possible. The legal wrangling over fees has begun; one area of constant contention is billing for “costs,” particularly those for interpreting and copy services.

In recent weeks, many copy services and interpreting agencies have acted to avoid the new fees. Noting that the statute applies only to liens, they try not to pay lien fees by filing petitions for costs. Many of the services that filed liens have withdrawn them and filed petitions. Such actions naturally raise the question: Is this a subversion of the lien activation and filing fees legislation? We think that it is, and that the fees should be imposed.

Interpreter and Copy Services Are “Claims for Costs”

Under LC 4903.05 and LC 4903.06, the filing or activation fee is imposed on “Any lien claim for expenses under subdivision (b) of Section 4903 or for claims of costs.” What does this mean? LC 4903(b) clearly refers to any and all medical treatment under LC 4600. In some circumstances, interpreters could be considered medical treatment; less so for copy services.

Defining the term “claims of costs” in the current legal environment is tricky. The statutory context at the time of SB 863 must be considered. Also, emergency regulations were adopted to clarify the liens and claims of costs to which the fees apply. They are valid for six months; proposed final regulations are in play as well. Numerous regulations generate numerous questions.

But there seems to be no question that fees for copy services and interpreting agencies can qualify as "claims for costs." Costs generally are allowed under LC 5811. That section states: "In all proceedings under this division before the appeals board, costs as between the parties may be allowed by the appeals board." 

Costs under LC 5811 are discussed in depth in “Sullivan on Comp,” Section 15.105 Litigation Costs. That section describes the pertinent law, which defines copy service and interpreter costs as justifiable if they are incurred in association with treatment services, or more often as medical-legal. Rare cases have allowed copy service liens simply as a matter of the court’s discretion under LC 5811. The defense practitioner should review this section to see if the proposed cost is justifiable in a particular case, but usually there will be no defense that they are allowable costs.

The term "costs" is defined further by the emergency administrative regulations. Title 8, California Code of Regulations, Section 10205(h) states: 

"Cost" means any sum that is not included as an allowable lien under Labor Code section 4903 at the time of filing, but may be allowable under another section of the Labor Code. “Costs” include, but are not limited to: (1) deposition attorneys' and interpreters' fees under section 5710; (2) medical-legal expenses, including interpreters' fees, under section 4620 on or after January 1, 2013; (3) fees related to copy service or subpoena under section 5710; and (4) costs claimed under section 5811.

Note, however, that the proposed CCR 10205(h) modifies the term "cost." It states:

"Costs" means any claim for reimbursement of expense or payment of service that is not allowable as a lien under Labor Code section 4903. "Costs" include, but are not limited to: (1) expenses and fees under Labor Code section 5710; (2) costs under Labor Code section 5811, including qualified interpreter services rendered during a medical treatment appointment or medical-legal examination; and (3) any amount payable under Labor Code section 4600 that would not be subject to a lien against the employee’s compensation, including but not limited to any amount payable directly to the injured employee for reasonable transportation, meal, and lodging expenses and for temporary disability indemnity for each day of lost wages.

So both the current and proposed regulations clearly contemplate that "costs," for the purposes of the lien filing and activation fees, include those under LC 5811.

Interpreters' fees at deposition and medical-legal examinations are considered costs under the current regulation, while CCR 10205(hh)(3) includes interpreters' fees incurred in connection with medical treatment as part of an LC 4903(b) lien. The proposed regulation, however, would eliminate the requirement that interpreters' fees in connection with medical treatment must be LC 4903(b) liens, and specifically would include such services as costs under LC 5811. As we will show, this change in definition may be pivotal to determine if interpreters at medical treatment appointments must pay the lien filing fee.

The Filing Fee Applies Only to Lien Claimants

LC 4903.05 appears to require the filing fee to be paid only in connection with a lien. Specifically, LC 4903.05 (b) and (c) state:

(b) Any lien claim for expenses under subdivision (b) of Section 4903 or for claims of costs shall be filed with the appeals board electronically using the form approved by the appeals board. The lien shall be accompanied by a proof of service and any other documents that may be required by the appeals board. The service requirements for Section 4603.2 are not modified by this section.

(c) All liens filed on or after January 1, 2013, for expenses under subdivision (b) of Section 4903 or for claims of costs shall be subject to a filing fee as provided by this subdivision.

So the filing fee applies to liens "for expenses under subdivision (b) of Section 4903 .…" It also applies to liens "for claims of costs." By putting the word "for" before the term "claims of cost," the Legislature imposed the filing fee only on liens for claims of costs, instead of on all claims of costs. This interpretation is supported further by LC 4903.05(c)(1), which adds, "The lien claimant shall pay a filing fee of one hundred fifty dollars ($150) to the Division of Workers' Compensation prior to filing a lien ...." So, the $150 filing fee is applicable only to lien claimants.

This, of course, leads to the next question: Because the filing fee applies only to lien claimants, can an interpreter or copy service avoid the filing fee by filing only a petition for costs, instead of a lien? Also, do such providers even have standing to pursue their fees without filing a lien?

Who Is a Party?

LC 5811 allows only "costs as between the parties." So claims for costs may be pursued only by the parties. If an interpreter or copy service does not file a lien, or withdraws one in favor of a petition, is it a party, such that costs may be granted by the court?

At the time SB 863 was enacted, the regulations defined a party as: "(1) a person claiming to be an injured employee or the dependent of an injured employee; (2) a defendant; or (3) a lien claimant where either (A) the underlying case of the injured employee has been resolved or (B) the injured employee or the dependent of an injured employee chooses not to proceed with his, her, or their case." (Title 8, CCR 10210(y).) So only applicants, defendants and lien claimants were parties.

When SB 863 was enacted, service providers had to file liens in order to become parties, and they became parties only after the underlying case was resolved or when the applicant chose not to proceed with the case. A service provider could not become a party simply by filing a petition for costs.

The emergency regulations, however, have redefined what constitutes a "party." Pursuant to the current version of CCR 10205(aa), a "party" includes "a lien claimant or a petitioner for costs" if the underlying claim has been resolved or the employee has chosen not to proceed with it. The proposed final CCR 10205(aa) also includes "a petitioner for costs" as a party if either of those conditions has been met. So, CCR 10205(aa) places "petitioners for costs" on equal footing as lien claimants for the purposes of determining if they are considered parties.

Lien claimants become parties after the case-in-chief has resolved, and the regulations provide that "petitioners for costs" become parties at the same time. Because of these regulatory changes, interpreters and copy services are taking the position that only petitions are required, and, therefore, they are not subject to the filing fee.

Can the Lien Be Withdrawn in Favor of a Petition?

This new strategy of lien claimants bears scrutiny.

In cases in which a filing fee is required, the provider must decide whether to file a lien initially, or just a petition for costs. The issue is more fraught if a lien for the services already has been filed. If the lien is withdrawn, its claimant may well have a serious statute of limitations problem if the petition for costs is not effective. Also, there will be situations in which a lien claim is dismissed with prejudice for failure to show proof of payment of the required activation fee at a lien conference. If that happens, can the lien be resurrected in the form of a petition for costs?

LC 4903.06 provides for the lien activation fee. LC 4903.06 (a) states, "Any lien filed pursuant to subdivision (b) of Section 4903 prior to January 1, 2013, and any cost that was filed as a lien prior to January 1, 2013, shall be subject to a lien activation fee." It then outlines the time limits for payment of the fee.

LC 4903.06 (a)(2) requires a lien claimant to provide proof of payment of the filing or activation fee with a declaration of readiness to proceed. LC 4903.06(a)(4) requires all lien claimants who did not file the DOR to submit proof of payment at the lien conference. LC 4903.06(a)(5) then adds, "Any lien filed pursuant to subdivision (b) of Section 4903 prior to January 1, 2013, and any cost that was filed as a lien prior to January 1, 2013, for which the filing fee or lien activation fee has not been paid by January 1, 2014, is dismissed by operation of law."

Accordingly, CCR 10208(a) requires the activation fee to be paid "prior to appearing at a lien conference for a case, or on or before January 1, 2014, whichever occurs first." The proposed final version of CCR 10208(a) eliminates that language, but states, "'Prior timely payment’ means payment of the activation fee (1) prior to the filing of a declaration of readiness for a lien claimant filing a declaration of readiness, or (2) prior to an appearance at a lien conference by a lien claimant of record that did not file the declaration of readiness." So it seems clear from both the statutes and regulations that if interpreters or copy services have filed a lien before Jan. 1, 2013, they are subject to the lien activation fee that must be paid before a lien conference, or the liens will be dismissed.

To avoid paying the activation fee, some interpreters and copy services withdraw their liens altogether and file petitions for costs. Even in cases in which liens have been dismissed because the activation fee wasn’t paid, some providers have filed petitions for costs asserting that the earlier dismissal does not preclude the subsequent petitions.

The Case for the Defense

First of all, the defense must recognize that under the current regulatory scheme, as well as the proposed scheme, this providers’ strategy probably will be valid. That’s because the regulations define anyone filing a petition for costs as a party. And a party can be reimbursed for proper costs under LC 5811. If these regulations are valid, it follows that the providers do not need a lien, and may withdraw it, or may well survive a dismissal simply by filing a petition for costs.

Defenders against this practice will be forced to take the unenviable – yet, in our opinion, still valid – position that the regulations referred to above are invalid as a matter of law because they contravene the statutory scheme. Here’s the argument why.

The actions of the providers and the regulations they are based on subvert the clear intention of SB 863 that such providers must pay lien filing and activation fees. On page 7 of its Initial Statement of Reasons for the proposed lien regulation, the Division of Workers' Compensation recognizes that the statewide benefit of the filing and activation fees is to reduce costs. It recognizes, "Each lien adds an average of $400 to $1,000 of loss adjustment expenses to a workers' compensation claim, according to estimates by the Workers' Compensation Insurance Rating Bureau (WCIRB) and Commission on Health and Safety and Workers' Compensation (CHSWC), respectively." It also states, "The reduction in liens, particularly nuisance liens that are not worth the payment of a $150 filing fee, is expected to save California employers and insurers from $106 million to $743 million annually (including settlement costs)."

If interpreters and copy services could avoid filing fees simply by filing a petition, and without filing a lien, essentially it would eliminate the filing fee for claims of costs. Liens for claims of costs would never be filed, and the appeals board would be inundated with petitions for costs. Moreover, part of the employers' bargain of SB 863 would be eliminated if providers simply filed petitions. The nuisance liens eliminated by the lien filing fee would be replaced by nuisance petitions for costs.

Copy services and interpreters should not be able to circumvent the activation fee in LC 4903.06 either by withdrawing their liens and filing petitions for costs, or by filing petitions after their liens are dismissed. LC 4903.06(2) provides that "any cost that was filed as a lien prior to January 1, 2013 shall be subject to a lien activation fee." It contemplates that providers must pay activation fees to protect their previously filed liens. Allowing interpreter and copy services to bypass the fees with a petition would eviscerate the provisions of LC 4903.06.

Because copy services and interpreters are defined as costs under CCR 10205(h), they must pay the lien filing and activation fees. The Legislature could have limited the fees to liens for medical treatment under LC 4903(b), but it didn't; rather, it extended the filing and activations fees to liens for claims of costs.

The Case to Invalidate the Regulations

The only reason this is an issue is that the emergency and proposed regulations include a "petitioner for costs" as a party for the purposes of bringing a claim before the appeals board. By altering the definition of “party” to include a "petitioner for costs," the administrative regulations have excused some of them from paying fees. When SB 863 was enacted, a provider could become a party to the action only by filing a lien, so it made sense for the Legislature to impose the filing and activations fees only on liens for claims of costs.

The Legislature clearly decided that providers of copy and interpreter services should be subject to the filing and activation fees. The context in which the law was written required fees. And the intent of the law was to impose these fees. By creating these regulations after the fact, and redefining terms, the statutory scheme is betrayed.

In this scenario, the appropriate course for the appeals board is to strike the regulations as inconsistent with the statutes. It has ample precedent. In particular, Mendoza v. Huntington Hospital (2010) 75 Cal.Comp.Cases 634 (appeals board en banc), in which the WCAB struck down the infamous “Rule 30.” It forbade defendants from obtaining medical-legal evidence in denied cases. (This case and the history of that rule are discussed in depth in “Sullivan on Comp” Section 14.27 Medical-Legal Process on or after Jan. 1, 2005.) The appeals board pointed out that regulations inconsistent with or contrary to the statutory scheme were inherently invalid. For more precedent on this point, see “Sullivan on Comp” Section 1.11 Code of Regulations.

Conclusion

Providers of interpreter and copy services will continue to file petitions for costs and conform to the post-SB 863 regulations.

The defense industry should be active in bringing this matter to greater recognition. The proposed regulations should be changed to conform to the original definition of a party and to require fees for all lien claimants as intended by SB 863.

In the meantime, the defense should insist that the appeals board accept its view of these regulations as invalid. If a lien is dismissed or withdrawn, the defense should argue that the lien no longer exists, that any petition for costs is filed by a nonparty and therefore is invalid without hearing. If prudent, any order to the contrary should be the subject of a petition for removal.


Michael W. Sullivan is the founder of Michael Sullivan Associates, a workers' compensation defense firm with offices in Southern California, and author of "Sullivan on Comp," a treatise on California workers' compensation law. JP Navarro is the lien unit manager at the  firm.