Cash Cow Case

Friday, November 12, 2010 | 0

By Zachary Sacks
Sacks & Zolonz

A recent decision by a three-member panel of the Workers' Compensation Appeals Board in California over a dispute involving just $56.25 could end up costing the defense industry countless thousands of times that sum annually, and embolden injured employee attorneys in their quest for larger deposition attorney fee awards.

In this case alone, the dispute cost the defendant the original $56.25 plus $2,250.00 for wasting the Court's time, and resulted in a rare admonition by the Appeals Board to the defendant to take matters no further. The case was publicized to the entire California Workers' Compensation industry. (Danny Alvarez vs. Moreno Valley Unified School District, PSI c/o Corvel Corp.)

History of the Case

This case arose out of a deposition of an injured employee, for which under California Labor Code Section 5710 (b) (4) his attorney is entitled to a reasonable allowance for attorney fees to be paid by the employer or the insurer. By habit and custom, the attorney requests the fee from defendant at or shortly after the deposition, and if not agreed to or paid promptly thereafter, the attorney petitions for an award of fees from a judge.

In this case the attorney, a certified specialist in workers' compensation law by the State Bar, asked for $275 per hour. Defendant did not dispute the hours, but chose to pay at $250 per hour instead, offering no evidence or basis for the payment of the lesser sum other than contending that the lesser sum was the reasonable rate. The worker's attorney then petitioned the Court for payment at the higher rate and thereafter the first judge awarded a reasonable attorney fee at that higher rate.

Matters did not end there with the payment of the $56.25. Defendant then objected to the higher rate petition and objected to the Order. A pretrial conference was then held before another judge, but with nothing on the record. Defendant did not resolve the matter at that time. The case then went to trial before the third and final judge.

During the course of the proceedings, the injured worker's attorney prepared and served an extensive trial brief and offered evidence of other awards from other judges who had approved the sought-after $275 rate. Defendant offered no hard evidence and only argument.

The final judge awarded the disputed $56.25 and an additional attorney fee of $2,250 for time spent in pursuing the original fee under Labor Code section 5813, infra. Sanctions against defendant were not raised at the time of trial.

Defendant petitioned for reconsideration, but the Appeals Board panel denied the petition based upon a three-sentence opinion which included a warning to defendant to essentially stop there before it got worse.

Reasoning of the Court

The trial judge set out in great detail how determining what is a "reasonable attorney fee" referred to in Labor Code Section 5710 varies. She emphasized that there was no uniform rate and there was not even agreement between judges at the various District Offices. Essentially, it is up to the individual judge, based upon the individual case, based upon the particular town, city or county and based upon the individual identity of the attorney seeking the fee.

Once that determination had been made, as was done here by the first judge it then became the burden of the defendant to successfully show unreasonableness of that judge's decision.

"Absent a showing of good cause, a judge's determination as to what constitutes a "reasonable" fee should be upheld....Defendant offered no rebuttal evidence, but even if they had offered evidence showing contemporaneous judge orders for payments at less than $275 per hour and proof of contemporaneous voluntary payments of less then $275 per hour being accepted, it still would not be persuasive that at the time....(the first judge)... awarded the $56.25 difference...that award of fees was unreasonable." (emphasis added).

If you stop to consider for a moment, the burden upon the defendant to show the unreasonableness of the first judge's opinion starts to look insurmountable, especially if you are talking of an incremental increase of just 10% above what the defendant thought to be reasonable, as was the case here. While defendant can still argue in other cases the skill level of the attorney to determine the hourly rate (newly admitted lawyer vs. certified specialist), that was not an issue here. Also, the language of the judge more than suggests that you have one shot and only one shot to convince the first judge of what a reasonable fee should be in the defense view, and it must be with something persuasive. That would be the time to offer evidence of lesser fee awards or acceptances. Thereafter the "even if" language seems to foreclose pointing to that evidence again after the first decision on the issue.

Concerning the issue of the reasonableness of the fee, it is notable that defendant offered nothing  "...other than their mere contention that the reasonable hourly rate at the time of applicant's deposition was $250 per hour." This turned out to mean something in terms of possible sanctions and added fees.

Sanctions

California Labor Code section 5813 provides for an award of attorney fees incurred by another party as a result of bad-faith actions or tactics that are frivolous or solely intended to cause unnecessary delay. On top of attorney fees there can also be sanctions up to $2,500.  Because the case went as far as it did with no proof offered, the trial judge would have considered sanctions had the issue been raised at trial. When defendant sought reconsideration of the judge's decision, sanctions were then urged by the judge to be awarded by the appellate panel.

The warning by the three judge Appeals Board panel tells the tale:

"In addition, although we will not impose further sanctions/attorney's fees at this time, we admonish petitioner for continuing to assert a position that is without merit and for which it has provided no supporting evidence."

Lessons to be Learned

If you are going to argue about attorney fees, have some evidence right from the start. Carriers and self-insured employers will need to compile databases of these judge awards or attorney acceptances (if not already doing so) to provide to counsel as evidence if a challenge is to take place.

Look forward to the hourly rate for California deposition attorney fees to inch upwards at least $25 to $35 per hour from where they presently are. If those higher rates are awarded the language in this case suggests, it will be cited to discourage any challenge to the larger fee award and to raise the specter of sanctions. Hence, the significant cost to the defense industry.

As they say in poker:  Know when to fold them.

WorkCompCentral subscribers may download the WCAB panel decision here:
http://www.workcompcentral.com/pdf/2010/misc/5710feedispute.pdf

Zachary Sacks is a principal in the Southern California workers' compensation defense law firm of Sacks & Zolonz. This column was reprinted with his permission from the firm's blog, http://www.californiaworkerscompensationdefenseattorneys.com/