CITY OF LOUISVILLE, Aрpellant, v. Larry SLACK; Freeda Clark, Individually; Donna H. Terry, Administrative Law Judge; and Workers’ Compensation Board, Appellees.
No. 1999-SC-0580-WC.
Supreme Court of Kentucky.
March 22, 2001.
39 S.W.3d 809
Freeda M. Clark, Louisville, Counsel for Appellees, Freeda M. Clark and Larry Slack.
Donna H. Terry, Chief Administrative Law Judge, Department of Workers’ Claims, Frankfort, Counsel for Appellee, Donna H. Terry.
Walter W. Turner, Commissioner, Department of Workers’ Claims, Frankfort, Counsel for Appellee, Workers’ Compensation Board.
This workers’ compensation appeal concerns the constitutionality of the 1996 amendment to
Claimant, Larry Slack, was injured in August 1996, while employed as a park maintenance worker for the City of Louisville, and filed a workers’ compensation claim in May 1997. He was awarded a 40 percent permanent partial disability benefit by an arbitrator, after which the employer sought de novo review before an ALJ pursuant to
At the time Slack moved for attorney fees,
Upon an appeal by an employer or carrier from a written determination of an arbitrator or an award or order of an administrative law judge, if the employer or carrier does not prevail upon appeal, the administrative law judge shall fix an attorney‘s fee to be paid by the employer or carrier for the employee‘s attorney upon consideration of the extent, quality, and complexity of the services rendered not to exceed five thousand dollars ($5,000) per level of appeal. This attorney‘s fee shall be in addition to any fee awarded under paragraphs (a) and (b) of this subsection.
The issue in this case is аlmost identical to the one presented in Burns v. Shepherd, Ky., 264 S.W.2d 685 (1954), which concerned a challenge to “the constitutionality of
Unless based upon some unreasonable delay or willful failure of the employer, there could be no more constitutional justification for requiring the employer to pay all or part of the еmployee‘s attorney fee than to require payment of his grocery bill. Unless some standards are provided by which the requirement would apply only to employers who have unreasonably or willfully violated some obligation which they owe to an employee, we do not think the statute can be sustained as constitutional. It violates the due process clause of the Federal Cоnstitution and Section 2 of the Kentucky Constitution which declares that absolute and arbitrary power exists nowhere in a republic.
The Court of Appeals believed that the holding of Burns was so weakened by Owens v. Clemons, Ky., 408 S.W.2d 642 (1966), that Burns was not controlling authority despite the remarkable similarity between that case and this one. This seriously misread Owens, which neither overruled nor weakened the holding of Burns, but rather distinguished it. Id. at 646. Burns is still good law after Owens and the Court of Appeals erred in not following it as precedent. SCR 1.030(8)(a). Further, we decline any invitation to overrule Burns and, therefore, reverse the Court of Appeals.
The Court of Appeals may have been led astray by this passage in Owens:
The broad statement in [Burns] that the sole justification for the imposition of fees is the willful violation of a statutory obligation is inaccurate. The cases recognize other grounds. As shown in the language above quoted from the Teague case (297 Ky. 475, 180 S.W.2d 387), such a penalty (if properly it may be so characterized) can be justified as a protective measure for a certain class of workers. In Chicago & N.W.R. Co. v. Nye-Schneider Fowler Co., 260 U.S. 35, 43 S.Ct. 55, 67 L.Ed. 115 [(1922)], the basis for upholding a statute allowing an attorney‘s fee to those asserting property damage claims against railroad companies was that such a law stimulated the seasonable consideration and prompt payment of such claims.
Id. at 645-46. In addition to citing this passage, the Court of Appeals listed a number of other statutes that require one party to pay attorney fees for another as justification for its holding. But this misses the point of Burns entirely.
Burns was not decided based on blind adherence to the “American Rule,” which provides that each party pays its own attorney fees, win or lose. See Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). Rather, Burns turned on the idea that the arbitrariness of the statute violated basic notions of fundamental fairness:
In the statute under consideration, no distinction is made betwеen the just and the unjust. It applies with equal force to the employer who, without reasonable basis for his position, is trying to escape his statutory responsibility, and the employer who is neither seeking to avoid or delay payment of a valid claim asserted by the employee.
As illustrating how the statute may penalize an innocent employer, there may be many instances in which there wоuld be a good faith disagreement between the employer and employee as to the extent of disability resulting from an injury. The award of the Board may agree with the employer in determining the extent of disability; yet, if there is any award whatever, the employer is
The statute in the case at bar acts just as arbitrarily or more so. Its operation likewise violates the City of Louisville‘s right to procedural due process.
PROCEDURAL DUE PROCESS
This case concerns an appeal from a determination by an arbitrator, a position that no longer exists within the Workers’ Compensation statutes. See 2000 Ky. Acts Ch. 514, et seq. When the legislature created the arbitrator position and procedures in 1996, it created a means and method for prompt arbitration of claims. But expediency came at a price of reliability and accuracy:
- The arbitrator must render a determination within ninety (90) days of the assignment of the claim.
KRS 342.270(4) . - No transcript is permitted at the arbitrator level. 803 KAR 25:010 § 8(3) (1997).
- A deposition of the opposing party is not permitted unless the party agrees. 803 KAR 25:010 § 5(a) (1997).
- Proof is based upon medical reports and records. 803 KAR 25:010 § 8(4) (1997).
- The right to cross-examine medical experts is subject to the approval of the arbitrator upon a showing of good cause. 803 KAR 25:010 § 8(4) (1997).
- The arbitrator need not be an attorney, rather is only required to have “extensive knowledge in workers’ compensation law.”
KRS 342.230(9) .
A party aggrieved by an arbitrator‘s decision has far more than the right to an appeal on a cold record:
Within thirty (30) days after the filing of the benefit review determination with the commissioner, any party may appeal that determination by filing a request for hearing before an administrative law judge. Proceedings before the administrative law judge shall be de novo ....
A de novo review is quite different than an appeal on the record.1 In this case, it amounts to the right to retry the claim on the merits in front of an ALJ. Further, the proceedings before the ALJ include procedural safeguards not provided in the hearing before the arbitrator, including:
- The taking of a transcript. 803 KAR 25:015 § 3(1) (1997).
- The application of the Kentucky Rules of Evidence. 803 KAR 25:010 § 15 (1997).
- The right to discovery and to depose witnesses according to certain Kentucky Civil Rules of Procedure. 803 KAR 25:010 § 18 (1997).
- The ALJ is required to be an attorney with at least fivе years’ experience in workers’ compensation law.
KRS 342.230(3) .
A party affected by an administrative order is entitled to procedural due process. American Beauty Homes Corp. v. Louisville and Jefferson County Planning and Zoning Commission, Ky., 379 S.W.2d 450, 456 (1964). “It is an established rule that an enactment accords due process of law, if it affords a method of procedure with notice, and operates оn all alike.” Parrish v. Claxon Truck Lines, Inc., Ky., 286 S.W.2d 508, 512 (1955), quoting Pacific Live Stock Company v. Lewis,
ARBITRARY POWER
By limiting discovery and attorney involvement, the statutory arbitration proceedings promote prompt workers’ compensation determinations. However, they also limit a party‘s ability to adequately evaluate: (1) the claimant‘s medical records and reports; (2) the cause of injury and work relatedness; (3) the level of impairment; and (4) the reasonable prognosis of alleged injuries. In such a situation, it hardly seems unreasonable or unlikely that an employer might, in good faith, wish to appeal an arbitrator‘s ruling in order to test its fairness and accuracy.
Therefore, we reverse the Court of Appeals and remand to the ALJ with instructions to enter an order with regard to the attorney fees that is consistent with this Opinion. Further, for the sake of clarity and consistency, we overrule Earthgrains v. Cranz, Ky.App., 999 S.W.2d 218 (1999).2
COOPER, KELLER, and WINTERSHEIMER, JJ., concur.
GRAVES, J., dissents by separate opinion, with LAMBERT, C.J.; and STUMBO, J., joining that dissent.
GRAVES, Justice, dissenting.
A court dealing with a challenge to the constitutionality of an act of the General Assembly must “necessarily begin with the strong presumption in favor of constitutionality and should so hold if possible.” Brooks v. Island Creek Coal Co., Ky.App., 678 S.W.2d 791, 792 (1984). Due process or еqual protection is violated “only if the resultant classifications or deprivations of liberty rest on grounds wholly irrelevant to a reasonable state objective.” Kentucky Association of Chiropractors, Inc. v. Jefferson Co. Medical Society, Ky., 549 S.W.2d 817, 822 (1977). “When economic and business rights are involved, rather than fundamental rights, substantive due process requires that a statute be rationally related to a legitimate state objective.” Stephens v. State Farm Mut. Auto. Ins. Co., Ky., 894 S.W.2d 624, 627 (1995).
Section 59 of the Kentucky Constitution does not prohibit the legislature from making reasonable classifications. Kentucky Milk Marketing & Anti-Monopoly Commission v. Borden Co., Ky., 456 S.W.2d 831, 835 (1969). Under the rational basis test, a classification will withstand an equal protection challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the classification. Heller v. Doe, 509 U.S. 312, 113 S.Ct. 2637, 125 L.Ed.2d 257 (1993) (citing F.C.C. v. Beach Communications, Inc., 508 U.S. 307, 113 S.Ct. 2096, 124 L.Ed.2d 211 (1993)); Commonwealth v. Howard, Ky., 969 S.W.2d 700 (1998). “[I]n
There is a growing trend toward adding attorney fees to a claimant‘s award. In 1972, Section 28 of the Longshoremen‘s and Harbor Workers’ Compensation Act1 was amended to provide a claimant payment for legal fees in cases in which the existence or extent of liability is controverted and the claimant employs legal counsel and successfully prevails on his or her claim. The criteria for entitlement of attorney fees is only that: (1) the claim is disputed; (2) the claimant utilizes the services of counsel; and (3) the claim is successfully prosecuted.
Likewise, other jurisdictions have enacted statutory provisions for adding on attorney fees under specific circumstances. In Baker v. Louisiana Pac. Corp., 123 Idaho 799, 853 P.2d 544 (1993), cert. denied, 510 U.S. 1024, 114 S.Ct. 634, 126 L.Ed.2d 592 (1993), the Idaho Supreme
Several states have statutes providing for the award of attorney fees to be assessed against the employer in cases where the claimant prevailed below and the award was affirmed on the employer‘s appeal. Ark.Code. Ann. § 11-9-715(b)(1) (Miсhie 1999); Cal. Lab.Code § 5801 (Deering 2000); Del.Code Ann. tit. 19, § 2350(f) (2000); Haw.Rev.Stat. § 386-93 (2000). The Florida statute provides, “If any proceedings are had for review of any claim, award, or compensation order before any court, the court may award the injured employee or dependent an attorney‘s fee to be paid by the employer or carrier, in its discretion, which shall be paid as the court may direct.” Fla. Stat. Ann. § 440.34(5) (West 2000).
In the United States, the “American Rule” provides that each party pays its own attorney fees, win or lose. Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). The inability of a litigant, who has incurred a legal bill because of the (as it turns out) mistaken resistance of his or her opponent, to shift that bill to the opponent has always been a somewhat paradoxical tradition of the American legal system. The successful plaintiff, who was supposed to be made whole by the recovery, is made something less than whole by the time the lawyer is paid; or a vindicated defendant, who feels that the outcome of the trial proves there should never have been a suit filed in the first place, emerges from the supposedly successful legal contest with considerably less money than he or she had when entering the cоntest. The obligation to bear one‘s own legal fees, then, has become established as a necessary evil, which each client must contrive to bear as cheerfully as he or she can.
When, however, this practice is superimposed upon a closely calculated system of wage-loss benefits, a serious question arises whether the social objectives of the legislation may to some extent be thwarted. The benefit scales are so tailored as to cover only the minimum support of a claimant during disability. There is nothing to indicate that the framers of the benefit rates included any padding to take care of legal and other expenses incurred in obtaining the award. The level of benefits is so closely calculated that all costs must be regulated to prevent frustration of the purposes of the act. Accordingly, exceptions to the American Rule have developed when “overriding considerations of justice seem to compel such a result.” Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 718, 87 S.Ct. 1404, 1407, 18 L.Ed.2d 475 (1967).
Workers’ compensation law is a strictly regulated statutory system which may make allowance for attorney fees in addition to the award. The Workers’ Compensation Act is rеmedial legislation and must be liberally construed to accomplish its humanitarian purposes. One purpose is to provide prompt and certain payment of compensation to injured workers without protracted litigation.
LAMBERT, C.J., and STUMBO, J., join in this dissent.
JOHNSTONE
Justice