Dami Hospitality, LLC v. Industrial Claim Appeals Office
2017 COA 21
| Colo. Ct. App. | 2017Background
- Dami Hospitality, a small motel operator, had lapses in required workers’ compensation insurance in 2006–2007 and from September 2010 to July 9, 2014.
- The Division of Workers’ Compensation calculated a daily fine under § 8-43-409 and Division Rule 3-6, ultimately assessing $841,200.
- Dami’s owner submitted a petition explaining she relied on an insurance agent (who admitted fault) and asserted inability to pay; Dami had <10 employees, annual payroll < $50,000, and no reported claims.
- The Director applied the Rule 3-6 formula and denied consideration of ability to pay or a fact-specific Eighth Amendment (excessive fines) analysis.
- The Industrial Claim Appeals Office remanded for consideration of factors from Associated Business Products; on remand the Director again declined a fact-specific inquiry and the Panel affirmed.
- The Court of Appeals set aside the Panel’s order and remanded, holding the Director abused discretion by failing to apply the Gore/Cooper/Associated Business Products factors to Dami’s specific circumstances (including ability to pay and delayed notice).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Facial constitutionality of § 8-43-409 (absence of cap and no deadline) | Statute is void/vague because removing the cap and allowing unlimited accrual without notice gives unchecked discretion and risks grossly disproportionate fines | Statute valid; absence of cap/deadline does not alone make it vague or unconstitutional; similar statutes upheld | Rejected facial challenge; statute not unconstitutional on its face |
| Excessive-fines as-applied (failure to do fact-specific Eighth Amendment analysis) | Director failed to apply Gore/Cooper/Associated Business Products factors to Dami’s facts (reprehensibility, disparity to harm, comparable penalties); thus fine is excessive as applied | Rule 3-6 formula inherently incorporates those factors; no further fact-specific inquiry required | Court: Director abused discretion by not applying the factors to Dami’s specific facts; fine set aside and remanded for recalculation |
| Procedural due process (notice and hearing) | Mail notice inadequate; hearing should have been held before fine imposed | Dami received actual notice; it failed to request prehearing conference; no prejudice shown; hearing not required as matter of right | Due process claim rejected; no deprivation shown |
| Consideration of ability to pay | Director must consider employer’s inability to pay; $841,200 would bankrupt Dami | No statutory or regulatory requirement to consider ability to pay; Rule 3-6 is mandatory/formulaic | Court: Ability to pay is a relevant factor for Eighth Amendment analysis and should be considered on remand |
Key Cases Cited
- Associated Bus. Prods. v. Indus. Claim Appeals Office, 126 P.3d 323 (Colo. App. 2005) (applies Gore/Cooper factors to statutory penalties)
- BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (U.S. 1996) (reprehensibility and proportionality guideposts for punitive awards)
- Cooper Indus., Inc. v. Leatherman Tool Grp., Inc., 532 U.S. 424 (U.S. 2001) (condenses punitive-damages review to three proportionality criteria)
- Bajakajian v. United States, 524 U.S. 321 (U.S. 1998) (civil fine excessive if grossly disproportional to offense)
- Austin v. United States, 509 U.S. 602 (U.S. 1993) (Eighth Amendment applies when civil sanction serves punitive purpose)
- United States v. ITT Cont’l Baking Co., 420 U.S. 223 (U.S. 1975) (upheld authority to impose daily fines under statute without fixed cap)
- Blood v. Qwest Servs. Corp., 252 P.3d 1079 (Colo. 2011) (applies Gore factors de novo to assess excessiveness of punitive damages)