PAUL J. THRONSON, Employee/Cross-Appellant, v. PREMIER AGGREGATES and WESTERN NAT=L MUT. INS. CO., Employer-Insurer/Appellants.
WORKERS' COMPENSATION COURT OF APPEALS
SEPTEMBER 15, 2000
PENALTIES; STATUTES CONSTRUED - MINN. STAT. ' 176.221, SUBD. 8. The employer and insurer, having failed to object to the issuance of an award on stipulation, were obligated to pay under the settlement according to its terms. Their unilateral withholding of a portion of the settlement payment for an alleged overpayment which had merged into the issues foreclosed in the settlement was an inexcusable delay, and justified the 25 percent penalty awarded under Minn. Stat. ' 176.225, subd. 5. Where the employer and insurer imposed a frivolous defense both to their underpayment and to employee=s claim for a penalty as a result of the underpayment, the compensation judge did not abuse his discretion in awarding a 30 percent penalty under Minn. Stat. ' 176.225, subd. 1a, and it was proper to calculate this further penalty not only on the amount underpaid but also on the amount awarded as a penalty pursuant to Minn. Stat. ' 176.225, subd. 5. For purposes of the deadline provided under Minn. Stat. ' 176.221, subd. 8, payment is normally deemed made when the payment process is initiated by the mailing of a properly addressed compensation check; therefore, the compensation judge did not err in failing to assess a late payment penalty on amounts mailed on the last day of the deadline period.
Determined by Johnson, J., Pederson, J., and Wheeler, C.J.
Compensation Judge: Donald C. Erickson
STEVEN D. WHEELER, Judge
The employer and insurer appeal from the compensation judge=s determination awarding certain penalties. The employee cross-appeals from the denial of his claim for penalties beyond those awarded. We affirm.
The employee, Paul J. Thronson, sustained a work-related injury to the hands on May 1, 1992 while working for the employer, Premiere Aggregates, as a heavy equipment operator. He underwent carpal tunnel release surgery on the left wrist on February 2, 1993 and on the right on March 17, 1993, but continued to experience symptoms of carpal tunnel syndrome despite the surgery. (Findings 1-5 [unappealed].)
In July 1996 the parties entered into a partial stipulation for settlement closing out permanent partial disability to 14.44 percent of the whole body and settling all claims for temporary total disability benefits to June 21, 1996. The employer and insurer also agreed to pay for services provided by a qualified rehabilitation consultant (QRC). The stipulation was submitted to a compensation judge and an award on stipulation was served and filed on July 29, 1996. (Judgment Roll.)
In July 1996 the employee began working part time as a cashier in a convenience store operated by his wife, while he conducted an unsuccessful job search with the assistance of a placement vendor. The job search was terminated in late February 1997 on the placement vendor=s recommendations. On April 1, 1997 a retraining plan was prepared by the employee=s QRC for a two-year course at the Lake Superior Community College to train the employee to work as a civil engineering technician. On May 5, 1997 the insurer=s claims administrator wrote to the QRC denying the proposed retraining and suggesting instead that the geographic scope of the employee=s job search activities be widened. The employee filed a rehabilitation request on June 4, 1997 seeking approval for the retraining plan. (12/1/97 Findings & Order (AF&O@): Findings 8, 11, 13, 15; Judgment Roll.)
On or about May 21, 1997, claiming that the employee=s temporary partial disability benefits should be computed based on an imputed 40-hour per week wage, the employer and insurer unilaterally reduced the amount of temporary partial disability benefits. No notice of intention to discontinue benefits or petition to discontinue benefits was filed in conjunction with the reduction. The employee objected and an administrative conference was held on the reduction of benefits. Following the conference, a settlement judge issued an order on July 19, 1997 directing payment of temporary partial disability benefits based on the employee=s actual earnings. The employer and insurer requested a formal hearing before a compensation judge and delayed making the payment ordered in the administrative order until some time in late September or early October 1997. (12/1/97 F&O: Finding 13.)
On October 28, 1997 a hearing was held before a compensation judge of the Office of Administrative Hearings on a variety of issues, including the calculation of temporary partial disability benefits, the employee=s request for retraining and a claim by the employee for penalties resulting from the employer and insurer=s failure to timely comply with the administrative order. Following the hearing, the judge approved the retraining plan and awarded penalties against the employer and insurer. No appeal was taken from this decision. (12/1/97 F&O: Orders 1, 2.)
The employee began the retraining program in the Spring 1998 term at Hibbing Community College, starting with refresher courses in English, Math and Reading. At the end of the term, he took his final examination in Reading but did not take his final examinations in Math and English. He did not enroll for any summer term courses, as none of the appropriate courses for his program were offered, and he decided, in consultation with his QRC, to wait to enroll for the fall 1998 session when appropriate classes would be offered. (Findings 10, 14 [unappealed].)
In the meantime, the parties had entered into negotiations towards a settlement. In May 1998 a tentative agreement was reached in which the employee would receive a net payment of $100,000.00 for a full, final and complete settlement. On May 27, 1998, counsel for the employer and insurer forwarded an initial draft of the stipulation to the employee=s counsel. On June 11, 1998, the employee=s counsel advised the defense counsel that the draft stipulation did not comply with the employee=s requirement of a $100,000.00 net payment. (Findings 11-3, 15 [unappealed.]).
The stipulation was redrafted to provide that the employee=s attorney would be paid $9,000.00 as Heaton fees through an order to be issued by the Office of Administrative Hearings. The stipulation specifically included the following recital:
The parties have entered into lengthy settlement negotiations regarding the value of all potential claims relating to the 5/1/92 injury and desire to settle said claims, except medical claims, by way of a lump sum payment to the employee.
(Judgment Roll: 7/13/98 settlement at paragraph IV.) The stipulation further provided, in relevant part, that:
Employer and insurer shall pay to the employee the sum of $100,000. Of this sum, $65,000 represents the employer and insurer=s payment against future liability for rehabilitation benefits. The payment of $100,000, when made, shall constitute a full, final and complete settlement of any and all past, present or future claims under the Minnesota Workers= Compensation Act, including but not limited to, temporary total disability benefits, temporary partial disability benefits, permanent total disability benefits, permanent impairment (in the form of impairment compensation, economic recovery compensation, or monitoring period compensation), rehabilitation and/or retraining, supplementary benefits, interest, penalties, chiropractic care, treatment and expense, health club memberships, civil damages under Minn. Stat. ' 176.82, nursing services, household remodeling, or any other benefit employee may be entitled to or claim to be entitled to arising out of the accident and injury of 5/1/92, with the sole exception of reasonable and necessary causally related non-chiropractic medical treatment and expense subject to the Maximum Fee Schedule.
(Judgment Roll: 7/13/98 settlement at paragraph VII. 1.)
The stipulation was approved by a compensation judge of the Office of Administrative Hearings and an Order on Stipulation was served and filed on July 20, 1998. (Judgment Roll.)
On August 3, 1998, the insurer issued and mailed two checks pursuant to the Award on Stipulation. One was in the amount of $35,000. The other was only in the amount of $60,377.50, the insurer having withheld the sum of $4,622.50 from the amounts due under the stipulation indicating in a notation on the check that the employee had been overpaid this amount in retraining benefits. (Finding 24 [unappealed].)
On August 20, 1998 the employee filed a claim petition seeking penalties for late payment and underpayment. The employer and insurer interposed their answer on August 28, 1998 generally denying the penalty claim. A hearing was held before a compensation judge of the Office of Administrative Hearings on November 17, 1999. At the hearing, the employee sought penalties for the employer and insurer=s failure to pay the portion of the settlement amount which had been withheld. He sought further penalties for late payment of the part of the settlement payment that was made, on the basis that the employee had received those payments more than 14 days after the filing of the award on stipulation. The employer and insurer took the position that their withholding of $4,622.50 from the stipulated settlement amount was proper and that none of the remaining amount had been untimely paid. Following the hearing, the compensation judge concluded that the unilateral withholding of $4,622.50 was contrary to the express terms of the stipulation and without any legal basis. The judge awarded a 25 percent penalty on the unpaid amount for inexcusable delay in payment, pursuant to Minn. Stat. ' 176.225, subd. 5. The judge further awarded a 30 percent penalty on both the unpaid amount awarded and the penalty awarded on that amount on the basis that the employer and insurer had interposed a frivolous defense, pursuant to Minn. Stat. ' 176.225, subd. 1. The judge held that the partial payments of the amounts required under the settlement, which were mailed on August 3, 1998, were timely paid, and denied any penalty for late payment of that portion of the stipulated settlement amount.
The employer and insurer appeal from the judge=s award of penalties. The employee cross-appeals from the judge=s conclusion that the mailing of payment by the employer and insurer on August 3, 1998 constituted timely payment.
Penalty for Underpayment
The employer and insurer=s reduction of the settlement amount paid was based on their contention that the employee lost his entitlement to ongoing rehabilitation benefits when he failed to take final examinations and did not re-enroll for summer session courses. They claimed that retraining benefits paid during the period that the employee stopped attending classes through the date of the settlement were paid in error, and further maintain that the provisions of Minn. Stat. ' 176.179 (1992) permitted them to withhold the amount of the alleged overpayment from the lump sum payment due under the stipulation for settlement.
We affirm the judge=s determination that the employer and insurer had no legal basis to withhold this sum from the settlement amount. In the settlement, the employee agreed to resolve all benefit claims against the employer and insurer arising out of the May 1, 1992 injury in return for a net payment to him of $100,000.00. When the settlement became effective upon its approval by a compensation judge and the issuance of the award on stipulation on July 20, 1998, any potential prior over- or under-payments, known or unknown, became part of the settlement, the terms of which then governed the parties= rights to payment or deductions to payment, unless subsequently vacated by this court for good cause pursuant to statute.
After the stipulation for settlement was approved without objection by the employer and insurer, they no longer had any legal basis for alleging an overpayment, as all prior amounts paid became subsumed by the settlement. Therefore, as these specific amounts were not separately addressed in the stipulation, no legal dispute was possible over amounts previously paid other than by means of a petition to vacate. The provisions of section 176.179, regardless of which version of the statute is deemed effective, do not apply and cannot affect the obligation to pay the entire amount of the stipulated agreement. The employer and insurer, having failed to object to the issuance of an award on stipulation, were obligated to pay under the settlement according to its terms. Minn. Stat. ' 176.225, subd. 5, provided, in pertinent part, that A[w]here the employer is guilty of inexcusable delay in making payments, the payments which are found to be delayed shall be increased by 25 percent.@ The failure to pay the withheld portion of the payment was an inexcusable delay, and the judge was justified in assessing a 25 percent penalty.
Penalty for Frivolous Defense
Through the hearing below the employer and insurer maintained their position that they had a right to withhold for prior alleged overpayment from the settlement amount. This was their only defense to the penalty claim raised by the employee. Their position was wholly untenable and without any legal authority. As such, it constituted a frivolous defense, and the compensation judge did not abuse his discretion in awarding a 30 percent penalty pursuant to Minn. Stat. ' 176.225, subd. 1a.
The 30 percent penalty awarded was calculated not only on the amount withheld by the employer and insurer, but also on the amount awarded as a penalty pursuant to Minn. Stat. ' 176.225, subd. 5. The employer and insurer argue that this represents the imposition of a penalty on a penalty and was improper. That the penalty awarded here under subdivision 1 was, in part, Aa penalty on a penalty@ is undeniable, but it was not improper. The penalty under subdivision 5 was a claim at issue before the compensation judge, and the frivolous defense interposed by the employer and insurer was a defense to the employee=s claim for a penalty. A penalty under subdivision 1 is calculated on the Atotal amount@ of the award made at the hearing. As the subdivision 5 penalty was part of the Atotal award,@ the compensation judge properly calculated the subdivision 1 penalty.
3. Penalty for late payment of amounts actually paid under the stipulation.
Pursuant to Minn. Stat. ' 176.221, subd. 8, except under certain exceptions not applicable here, Apayment of compensation shall be made within 14 days of the filing of an appropriate order by the division or a compensation judge.@ In the present case, the insurer issued and mailed two checks on August 3, 1998 for payments under the Award on Stipulation, in the amounts of $35,000 and $60,377.50. August 3 was the 14th day following the service of the award on stipulation on July 20, 1998. The compensation judge determined that this portion of the amount due under the stipulation for settlement had been timely paid, and denied the employee=s request for penalties on this portion of the settlement amount.
The compensation judge concluded that the employer and insurer had adequately complied with the fourteen day payment requirement by mailing the checks on the fourteenth day. The employee argues that the compensation judge erred, contending that the act of payment was not fully completed, and therefore not Amade@ until the date when the employee actually received the checks in the mail, in this case, two days after they were mailed, August 5, 1998. (T. 21.)
Minn. Stat. ' 176.221, subd. 8, does not directly define whether such payment is made when mailed or when received. Minn. Stat. ' 176.225, which authorizes a compensation judge to assess a penalty, payable as an additional award to the employee, for unreasonably delayed or inexcusably delayed payments by the employer or insurer, is similarly not particularly helpful in this regard. The language does suggest that the question in the context of a penalty payable to the employee is one of whether the employer and insurer=s timing of payment was unreasonable, rather than a matter of inflexible application of a specific deadline. We note, however, that pursuant to Minn. Stat. ' 176.221, subd. 3, an administrative penalty, payable to the assigned risk safety account, may also be assessed A[i]f the employer or insurer does not begin payment of compensation within the time limit prescribed under subdivision 1 or 8.@ (Emphasis added.) We find this specific language particularly germane to the issue presented here, and conclude that for purposes of the deadline provided under subdivision 8, payment should normally be deemed to have been made when the payment process is initiated by the mailing of a properly addressed compensation check. The date of mailing also represents a more workable and equitable bright line date, as in the usual case it represents the last part of the payment process within the control of the employer and insurer.
The findings and order of the compensation judge are in all respects affirmed.
 The employer and insurer are not seeking vacation of the stipulation.
 That subdivision provides:
Subdivision 1. Grounds. Upon reasonable notice and hearing or opportunity to be heard, the commissioner, a compensation judge, or upon appeal, the court of appeals or the supreme court shall award compensation, in addition to the total amount of compensation award, of up to 30 percent of that total amount where an employer or insurer has:
(a) instituted a proceeding or interposed a defense which does not present a real controversy but which is frivolous or for the purpose of delay; or
(b) unreasonably or vexatiously delayed payment; or
(c) neglected or refused to pay compensaton; or
(d) intentionally underpaid compensation; or
(e) frivolously denied a claim; or
(f) unreasonably or vexatiously discontinued compensation in violation of sections 176.238 and 176.239.
For the purpose of this section, Afrivolously@ means without a good faith investigation of the facts or on a basis that is clearly contrary to fact or to law.