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Work Comp Central

Friday, April 29, 2016

Supreme Court Says Attorney Fee Statute Is Unconstitutional

by Sherri Okamoto (Legal Editor) State: Florida 

A divided Florida Supreme Court on Thursday struck down the state's mandatory fee schedule as unconstitutional, but the court passed  on a chance to decide if the comp system itself is a constitutionally adequate substitute for a tort remedy.

In its long-awaited ruling in Castellanos v. Next Door, the court found Florida Statutes Section 440.34 did not comport with due process because it creates an "irrebuttable statutory presumption" that a fee calculated in accordance with its provisions is "reasonable," even when such fee is "clearly inadequate" to compensate an attorney for his work.

The court said the statute was unconstitutional on its face, even though it could generate constitutionally adequate fees in some cases because it precludes every injured worker from challenging the reasonableness of the fee award in every single case.

However, the court declined to entertain a facial challenge to the entirety of Chapter 440, presented in another case titled Stahl v. Hialeah Hospital.

While the court did not explain its reasons in its two-paragraph order revoking its grant of review and discharging its jurisdiction, the justices had questioned counsel at oral argument earlier this month about whether the case was in an appropriate procedural posture for the court to rule on the merits of Daniel Stahl's arguments.

Stahl's position was that legislative amendments have so eroded the rights and remedies available to injured workers that it was inequitable to bar them from seeking redress through a civil suit.

Section 440.34 has been limiting the fees available to attorneys who represent injured workers since the 1990s, but the Legislature amended the statute in 2003 to make the fee schedule mandatory.

The schedule provides compensation on a sliding scale, depending on the amount of benefits obtained. Under this formula, a claimants' attorney is entitled to a fee equal to 20% of the first $5,000 in benefits secured for a client, 15% of the next $5,000 secured, and 10% of any amount secured in excess of $10,000.

But Marvin Castellanos got an award of only $822.70, even though the highly contentious litigation of his claim required his attorney to put in more than 107 hours of work. So application of the fee schedule to his attorney yielded an award of only $1.53 per hour.

Judge of Compensation Claims Gerardo Castiello found Section 440.34 left him with no choice but to issue an award in that amount, and the 1st District Court of Appeal affirmed the judge's ruling three years ago.

The Florida Supreme Court agreed to grant review to the matter in March 2014. It heard oral argument in November 2014.

After pending for nearly a year and a half, the court on Thursday found the limits imposed by Section 440.34 did not pass constitutional muster.

Justice Barbara Pariente wrote for the majority, and she said the right of a claimant to obtain a reasonable attorney fees when successful in securing benefits has been "critical feature of the workers’ compensation law since 1941."

Pariente explained that the point of the comp law is to provide an expedient remedy for injured workers, but she observed that the process of getting that remedy "has become increasingly complex to the detriment of the claimant, who depends on the assistance of a competent attorney to navigate the thicket."

In light of this, she said it is "undeniable" that "without the right to an attorney with a reasonable fee," the workers’ compensation law can no longer serve its purpose.

She observed that the Legislature in 2003 amended Section 440.34 in a way that "eliminated any consideration of reasonableness and removed any discretion from the JCC, or the judiciary on review, to alter the fee award in cases where the sliding scale based on benefits obtained results in either a clearly inadequate or a clearly excessive fee." As such, Pariente said it created a statute with "a conclusive irrebuttable presumption that the formula will produce an adequate fee in every case."

Pariente said the "inability of any injured worker to challenge the reasonableness of the fee award in his or her individual case is a facial constitutional due process issue."

Although Pariente acknowledged that the legislative purpose behind the amendment of Section 440.34 was "to standardize fees" — and having the conclusive presumption "certainly does that" — she said it does so "in a manner that lacks any relationship to the amount of time and effort actually expended by the attorney."

She said the Legislature was supposedly concerned with excessive fees being awarded, too, but "excessive fees can still result under the fee schedule, just as inadequate ones can," so "this is not a reasonable basis for the unyielding formulaic fee schedule."

Pariente further opined that it was perfectly feasible for JCCs to make individual assessments of what constitutes a reasonable fee in a given case, and so there was no need for "the inherent imprecision of the conclusive presumption."

The remedy, she said, would be reinstatement of the statute’s immediate predecessor, which was construed by the Florida Supreme Court as providing for a “reasonable” award of attorney’s fees when the statutory formula results in an unreasonable fee.

Chief Justice Jorge Labarga joined Pariente's opinion, along with Justices Peggy Quince, James Perry and R. Fred Lewis.

Lewis also wrote separately to say he thought Section 440.34 not only failed to comport with due process, it also violated the constitutional guarantee of access to the courts.

"Florida workers’ compensation system has become increasingly complex and difficult to navigate without the assistance of one having specialized training," he said.

Justices Ricky Polston and Charles Canady dissented.

Canady contended that Section 440.34 "embodies a policy determination by the Legislature that there should be a reasonable relationship between the value of the benefits obtained in litigating a workers’ compensation claim and the amount of attorney’s fees the employer or carrier is required to pay to the claimant."

While he conceded "this legislative policy may be subject to criticism," he said there is no constitutional requirement that statutory fee awards fully compensate a party for the effective litigation of all claims.

As Section 440.34 "unquestionably has a rational basis," Canady said, the court should not have declared it unconstitutional.

Polston argued that the statute cannot be facially unconstitutional if there is "a set of circumstances under which the attorney’s fees provision could be constitutionally applied," and so he said he thought the statute was only vulnerable to an "as-applied" challenge in this case.

Richard Anthony Sicking, Mark Andrew Touby and Richard Eric Chait of Touby, Chait & Sicking represented Castellanos before the Supreme Court, along with Tampa attorney Mike Winer.

Given the complexity of the comp system, Touby said, a worker without the assistance of competent counsel is "helpless as a turtle on its back." He said he thought the court's ruling clearly acknowledged "it's critical" that workers get representation.

He said he believed the court has not gotten rid of the fee schedule entirely — it has just said that "should be the starting point" for determining a reasonable fee award, and that a deviation is appropriate only if the scheduled award was unreasonable.

This "was how it was before" the 2003 amendments, and Touby opined that "it always worked."

He also said he didn't expect Thursday's decision to drive up costs within the system.

"We're in a $4 billion industry," and only a small portion of that is attorney fees, he said.

According to the Annual Report of the Office of the Judges of Compensation Claims, only $418,775,099 was paid in fees in 2012-2013.

Touby further said that he doubted the ruling will spark an uptick in litigated claims. He said his experience was that the level of litigation "remained pretty much the same" both before and after the 2003 amendment to Section 440.34, and this is because litigation only happens "when benefits that should be awarded are denied."

Touby said he also believed that "there are a lot of benefits that have been eliminated or diminished" over the years, and "there certainly still needs to be some restoration of those benefits," even with the court's ruling in Castellanos.

There's one more case still pending at the Supreme Court that may provide an avenue for that.

Westphal v. St. Petersburg involves a challenge to the state's 104-week cap on temporary disability and whether it is unconstitutional as applied to an injured firefighter who exhausted his benefits nine months before he became medically stationary.

That case has been pending at the Supreme Court even longer than the Castellanos case. Oral argument in Stahl took place in March 2014.

Winer said he believed that the Castellanos decision "somewhat ameliorates the problem from Stahl" because now "the courthouse doors are open for claimants to access all the benefits that are available."

He said he thought benefits "still aren't what they could be or should be, but at least the barrier to finding an attorney to access them has been removed."

But the amici for Next Door and defense attorneys who have been following the Castellanos case said they are concerned that the court's ruling is going to trigger rising costs for the comp system.

Tamela Perdue, general counsel for the Associated Industries of Florida and a newly appointed member of the state's Workers’ Compensation Panel, said she was certain that employers are going to be seeing their insurance rates rise. Such an increase will be an "unexpected and un-budgeted expense" for employers, she said.

Perdue said she wouldn't be surprised if Florida goes back to where it was in 2002, with the highest workers' compensation rates in the country. She said she also had concern that claims are going to start taking longer to resolve because attorneys will have "an incentive to keep them going" if they can get paid for more work.

Her group will be "calling on our elected leaders to consider the impact of this on Florida businesses, as well as state's economic outlook, and to respond," Perdue said. "This is something we have to have these officials take seriously and work with us to come up with a viable solution."

The Associated Industries of Florida had been a defense amicus in the Castellanos case, represented by attorney Rayford Taylor of Casey Gilson.

Taylor said Thursday that the 2003 amendments to Florida's comp laws had been designed to address "all the major cost-drivers in the system."

Attorney fees were one of them, he said, because "cases were being litigated when they probably shouldn't have been, and more than they probably should have been," which resulted in "small-value cases producing some huge fees" based on the number of hours the attorney put into them.

Now that the court has said that an attorney deserves a "reasonable" fee considering the amount of work performed, Taylor opined "there is no reason to think this situation will not be replicated in the future."

Taylor said the high costs of litigation had driven insurance rates up at around the turn of the millennium, and this "caused a lot of employers to leave Florida or to go bare," while carriers also "left the state or stopped covering certain risks."

In light of Thursday's ruling, Taylor said "there's a good chance that will happen again."

At the very least, Taylor said, it will "have an upward effect on rates, there's no ifs, ands or buts about that."

Chris Bailey, the National Council on Compensation Insurance state relations executive for Florida, said his group was evaluating the Castellanos decision as of Thursday afternoon. 

"The impact on Florida's workers' compensation system costs is expected to be significant," he said in an emailed statement.

Bailey advised that NCCI is planning to submit an off-cycle rate filing next month with a proposed effective date this summer for review and consideration by the Florida Office of Insurance Regulation.

Florida Insurance Commissioner Kevin M. McCarty issued a statement Thursday afternoon saying he believed a legislative remedy will be required to prevent significant increases in rates. "We look forward to working with all parties affected to bring about a sensible solution," he said.

In terms of legal precedent, William Large, president of the Florida Justice Reform Institute, on Thursday said he thought the Castellanos ruling was "an extraordinary case in terms of procedural due process jurisprudence."

The Institute had been a defense amicus in the case, which has "greatly expanded the potential grounds to bring a procedural due process violation in Florida," Large said.

He said he thought the ramifications of it could even carry outside of the comp arena, as the Castellanos ruling "has the potential to create unlimited challenges to the Legislature's authority to create policy if a claimant alleges there isn't an avenue to challenge the sufficiency of the regulation in question."

But H. George Kagan, a defense attorney for Miller, Kagan, Rodriguez & Silver who has been tracking the Castellanos litigation, said he believed that the Legislature may have "overreached" in 2003 when it made the fee schedule mandatory.

Still, he said he doubted the Legislature presumed these fees would be reasonable for every single case. Kagan said the fee statute "cut both ways," providing fees that were very large for cases where an attorney did very little work, and sometimes providing fees that were very small when an attorney did a lot of work.

Kagan said he thought that's what the Legislature had expected the statute to do, and while that would sometimes be an "unfair" outcome, the idea of comp is not to provide "perfect justice."

He said he suspected the court "thinks the door has been opened a modest amount" only, because attorneys can't get a fee that deviates from the fee schedule unless the scheduled amount is not reasonable, but he said he thought "the danger here" is that "in every case, that will be pleaded as inadequate."

But David Langham, the deputy chief judge of the Florida Office of the Judges of Workers' Compensation Claims, said he thought his office is prepared to deal with fee claims, if they start coming in.

The state's JCCS issued awards in "dozens and dozens and dozens" of cases under a "reasonable" standard before Section 440.34's schedule became mandatory, so there's "lots of authority" on how those determinations will be made, Langham said.

To read the court's decision, click here.