Employers may seek reimbursement of Claimant Attorney Fees assessed for an Unreasonable Contest

Employers and Insurers may recover Claimant Attorney Fees assessed for an Unreasonable Contest, when reversing that award on appeal

The Workers’ Compensation Act allows a Worker Compensation Judge (WCJ) to award claimant attorney fees where there is an unreasonable contest of a petition. (See: § 440). The WCJ must make a finding as to the amount and the length of time for which such counsel fee is payable based upon the complexity of the factual and legal issues involved, the skill required, the duration of the proceedings and the  time and effort required and actually expended. (See: § 440(b)). 

In cases where a Workers’ Compensation Judge  awards  claimant attorney fees for an unreasonable contest and the Employer/ Insurer is successful on appeal to reverse that award - there was no clear legal precedent to require the claimant attorney to refund the unreasonable contest attorney fees, to which they were no longer entitled.

A recent decision of the Commonwealth Court of Pennsylvania has determined that the Employer and Insurer may request a WCJ order directing the claimant counsel to refund unreasonable contest fees, where Employer is successful on appeal to reverse that award. See: County of Allegheny v. WCAB (Parker) No. 82 C.D. 2016 and No. 112 C.D. 2016 filed on December 20, 2016.

Factual and Procedural History

In the underlying litigation, in 2007 the Employer filed a petition for suspension of total disability benefits payable for a 1993 shoulder injury. The Employer argued that claimant was offered and refused a job within his work restrictions. Employer also argued that claimant had voluntarily withdrawn from the work force. 

In 2008, the Workers’ Compensation Judge granted employer suspension petition, finding that claimant, who was 80 years old at the time, had failed to follow through in good faith on a job referral within his physical limitations from his shoulder injury. He had completely withdrawn from the work force as a result of his age and medical conditions unrelated to his work related shoulder injury.

Claimant appealed the WCJ 2008 order of suspension. On appeal,  the Workers’ Compensation Appeal Board (WCAB) 2009 decision reversed the suspension order on the basis that Employer was barred by the legal doctrine of collateral estoppel from requesting a 2007 suspension as an earlier 2004 WCJ decision had denied a prior suspension petition.  To add insult to injury, the WCAB held that claimant was entitled to unreasonable contest attorney fees and remanded the case for the WCJ to determine the amount of those fees. [Employer petitioned for review to the Commonwealth Court, but the petition was deemed premature due to the remand nature of the WCAB order].

On remand, as directed, the WCJ 2009 decision awarded claimant attorney fees for the litigation of the 2007 suspension petition. On Claimant and Employer cross-appeals back to the WCAB, the 2011 Appeal Board decision modified that WCJ order and directed the payment of additional counsel fees for the work performed in the claimant’s appeal from the 2008 WCJ suspension decision, in addition to the counsel fees for litigation of the 2007 suspension petition.

Employer filed a Petition for Review of the WCAB 2011 decision to the Commonwealth Court. Employer argued that the WCAB reversal of the 2008 WCJ suspension order was erroneous as a matter of law. The direction for assessment of unreasonable contest attorney fees for litigation of the 2007 suspension petition was erroneous as a matter of law. The assessment of additional counsel fees regarding claimant’s appeal from the WCJ 2008 suspension order was erroneous as a matter of law.

In the Employer appeal to the Commonwealth Court from the WCAB 2011 order, the Employer requested a supersedeas of compensation payments to claimant, including payment of attorney fees. The applications for supersedeas were denied by the Appeal Board and by the Commonwealth Court.  On this basis, employer issued payments, including claimant unreasonable contest attorney fees of $14,750.00.

In 2012 the Commonwealth Court reversed the WCAB 2009 and 2011 decisions. The Court ruled that the Employer’s 2007 suspension petition was not barred by the legal doctrine of collateral estoppel as the 2007 factual and legal issues were not identical to the issues presented in the 2004 WCJ decision. On this basis, the WCAB erred as a matter of law in reversing the suspension of claimant’s benefits directed by the WCJ 2008 decision. Claimant filed an Application for Allowance of Appeal to the Supreme Court of Pennsylvania, which was denied.

After the denial of claimant’s petition for allowance of appeal, Employer filed an application for supersedeas fund reimbursement with the Bureau. Employer requested: reimbursement of the compensation paid to claimant; attorney fees paid under the contingent fee agreement; the $14,750.00 paid in unreasonable contest attorney fees. The Bureau approved a limited reimbursement for the compensation paid to claimant and the contingent attorney fee agreement. The Bureau properly denied the employers reimbursement requests for the $14,750.00 in unreasonable contest fees, as such fees were not reimbursable under §443 of the Act.

As reimbursement was not available from the supersedeas fund, Employer filed the petition which is the subject of this appeal, seeking an order from the WCJ to direct claimant counsel to refund the $14,750 unreasonable contest attorney fees. 

The WCJ denied Employer’s petition, as there was no clear legal precedent for such an order requiring the return of unreasonable contest attorney fees.

The WCJ also denied claimant’s request for the imposition that additional unreasonable contest fees for the litigation of the employer petition, as this petition was filed in good faith, in regards to an unsettled legal issue.

The WCAB affirmed the WCJ decision.

Employer appealed to the Commonwealth Court.

The Commonwealth Court reversed.

The decisions of the WCJ and WCAB erroneously concluded that Employer could not recover the award of unreasonable contest attorney fees - which were required to be paid by the underlying WCJ & WCAB orders – where Employer was successful to reverse that decision on appeal.

Commonwealth Court reasoning

The Commonwealth Court relied upon its prior decision in Barrett v. WCAB (Sunoco Inc.)(Pa. Cmwlth. 2010) which held that an employer and insurer may request the reimbursement of litigation costs which were awarded and paid, where that award is later reversed on appeal. In Barrett the court concluded that allowing claimant counsel to retain the legal costs to which he is no longer entitled, would result in an unjust enrichment. As the employer cannot recover the legal cost awards from the supersedeas fund, the employer would be deprived of any meaningful appeal form an erroneous cost award.

The reimbursement of legal costs would not impose a hardship on the claimant, as the recovery was sought directly from claimant’s counsel not from the claimant. In review of its prior decision in Barrett, the court referenced two unreported decisions which reached similar results. See: Daniels v. WCAB (Giancarli Constr. Co.) and Lewis-Briggs v. WCAB (DPW).

Although, the prior decision in Barrett involved litigation costs, the court believed the reasoning in Barrett is equally applicable to the unreasonable contest attorney fee issue. Where the employer has been erroneously ordered to pay litigation costs, the WCJ can order claimant’s counsel to refund that overpayment. The decision in Barrett compels the conclusion that the employer is entitled to an order requiring claimant counsel to refund the $14,750.00 in fees that were erroneously awarded.

Each factor in Barrett was present in the instant case. The Commonwealth Court reasoned that the award of litigation costs and the award of unreasonable contest attorney fees are both pursuant to §440 of the Act. The § 440 language includes unreasonable contest attorney fees as one of the types of costs incurred in litigation.

Both costs are payments in addition to the award of compensation to the claimant. To order a refund involves no payment of compensation benefits and denying a refund would result in unjust enrichment.

The court reasoned that the lack of any other remedy to the employer is the same for the unreasonable contest attorney fees as it is for other litigation costs. The supersedeas fund reimbursement is limited to “payments of compensation”. Only indemnity wage loss benefits and medical expense reimbursements can be recovered by the employer from the supersedeas fund following a successful appeal. There is no recourse from the supersedeas fund for unreasonable contest attorney fees or other litigation costs.

The court rejected the claimant and amicus curiae arguments that unreasonable contest attorney fees should be treated differently from other litigation costs. The court noted claimant compensation payments were over $106,000 for a period when his benefits should have been suspended. Claimant counsel received a 20% contingent attorney fee payment and claimant received over $84,000.00. The employer’s petition for reimbursement of the $14,750 of unreasonable contest fees does not request or require claimant or claimant counsel to return any of the compensation benefits paid following the supersedeas denial.

The court rejected arguments that allowing retention of improperly awarded unreasonable contest attorney fees was necessary or appropriate for the protection of claimant’s rights to obtain compensation, to which they are entitled. “An order to return fees erroneously awarded for unsuccessful litigation does not reduce (claimant) counsel’s ability to recover unreasonable contest attorney fees for successful claimants who are entitled fees nor does it reduce the amount of the fees received where unreasonable contest attorney fees are validly awarded.” (Slip opinion at p.10).

The court distinguished claimant argument which referenced that  claimant’s counsel are entitled to retain the 20% contingent attorney fees despite the fact the claimants may  ultimately be unsuccessful in litigation. These fees have a difference origin. They are paid out of claimant’s compensation. They are subject to reimbursement by the supersedeas fund, where unreasonable contest attorney fees are not.

Employer did not waive its right to seek a refund of unreasonable contest attorney fees in the 2011 appeal to the Court from the WCAB decision. Employer was not required to obtain an order from the Commonwealth Court before filing a petition to the WCJ for a refund of unreasonable contest attorney fees. “Until this Court reversed the Board’s 2009 decision on September 18, 2012, Employer had no basis for filing a petition for refund”. (Slip opinion p. 12).

President Judge Mary Hannah Leavitt joined in this opinion.

Judge Cosgrove wrote a dissenting opinion. The decision in Barrett – to refund deposition costs paid to claimant counsel – does not provide sufficient support for the reasoning to allow refund of unreasonable contest attorney fees.  

PRACTICE POINTERS:

1. Review ALL litigation files where an adverse decision is REVERSED on appeal.

•           If supersedeas was denied, prepare an application for reimbursement to the Bureau.       
•      If litigation costs were paid to claimant counsel – request a refund.     
•           If unreasonable contest attorney fees were paid – request a refund.

2. If claimant counsel will not voluntarily issue a refund – file a Petition to Review 

    Compensation with the Bureau.

QUERY: Does this new decision change one’s assessment of the necessity to file an appeal of an                 unreasonable contest finding?

In the past, one may have assessed the case and decided to forgo an appeal of the underlying claim issues - 

However, it may now be cost-effective to file an appeal of the unreasonable contest determination – as a refund is available.