DARYL F. CLARK, Employee/Appellant, v. LAKE SUPERIOR PAPER/M.J. ELEC., and ST. PAUL COS., Employer-Insurer, and SPECIAL COMP. FUND, Intervenor.
WORKERS= COMPENSATION COURT OF APPEALS
MARCH 11, 2005
PENALTIES - SUBSTANTIAL EVIDENCE. Where the record supports the compensation judge=s determination that the facts of this case do not give rise to an award of penalties, we affirm the denial of the employee=s claim for penalties.
ATTORNEY FEES - SUBD. 7 FEES. The compensation judge could reasonably conclude that the employee=s attorney was not entitled to attorney fees under Minn. Stat. ' 176.081, subd. 7a (repealed) by limiting comparison of the settlement offer to benefits due for a certain period of time.
Determined by: Rykken, J., Johnson, C.J., and Wilson, J.
Compensation Judge: Gregory A. Bonovetz
Attorneys: David R. Vail, Soderberg & Vail, Minneapolis, MN, for the Appellant. Barbara L. Heck, John G. Ness & Associates, St. Paul, MN, for the Respondents. Special Compensation Fund, Intervenor.
MIRIAM P. RYKKEN, Judge
The employee appeals from the compensation judge=s denial of his claim for penalties based on late payment of benefits. We affirm.
On November 15, 1986, Mr. Daryl F. Clark, the employee, sustained an admitted injury to his right knee while employed by Lake Superior Paper, the employer. On that date, the employer was insured by St. Paul Fire and Marine Insurance Company, the insurer. Following that injury, the employer and insurer paid temporary total disability benefits for a period of time in 1987, as well as benefits based on 5% permanent partial disability to the body as a whole. Following later adjudication of the claim, the employer and insurer paid additional benefits and medical expenses, and, since March 24, 2001, have paid temporary total and permanent total disability benefits.
The employee earlier sustained a right knee injury. On January 1, 1962, he injured his right knee while employed by Northwest Paper, later known as Potlatch Paper. In February 1966, as a result of that injury, the employee underwent surgery in the nature of an open arthrotomy of the right knee and a removal of the meniscus. Following his 1986 injury, the employee underwent further surgery in 1987, in the nature of a valgus upper tibial osteotomy.
On March 24, 2001, the employee underwent surgery for a total right knee replacement. On March 26, 2001, the employee filed a claim petition, seeking payment of temporary total disability benefits continuing from January 8, 2001, and payment of medical expenses. In their answer to the claim petition, the employer and insurer admitted the 1986 injury, but denied entitlement to the claimed benefits, based upon various defenses, including contentions that the employee=s disability resulted from injuries or conditions unrelated to his 1986 work injury, that the employee=s claim lacked medical support, that the employee had failed to conduct a reasonable and diligent job search within his restrictions during the period of claimed disability, and that the employee had withdrawn from the labor market.
At the request of the employer and insurer, the employee was examined by Dr. Loren Vorlicky on June 18, 2001. According to information provided in the parties= appellate briefs, Dr. Vorlicky concluded that the employee=s disability resulted primarily from his 1962 work injury, but he apportioned liability for the employee=s disability and need for medical treatment between both work injuries, attributing 80% responsibility to the 1962 injury and 20% to the 1986 injury. The employer and insurer served and filed Dr. Vorlicky=s report on July 17, 2001, and, based on the report, petitioned for joinder of the employer and insurer at the time of the employee=s 1962 work-related injury and also for joinder of the Special Compensation Fund. Those parties were joined to the claim. In addition, Electrical Workers= Health and Welfare Fund, which had paid disability benefits and medical expenses, was later joined as an intervenor to the claim.
A hearing was held before Compensation Judge Gregory Bonovetz on October 24, 2002. On the day of the hearing, the Special Compensation Fund agreed to admit registration of the employee=s 1962 work injury with the Fund, and admitted that, as a result of the employee=s pre-existing physical impairment, the employee=s disability resulting from his 1986 injury at Lake Superior Paper was made substantially greater than what would have resulted from that injury alone. Registration thereby entitled the 1986 employer and insurer to reimbursement from the Second Injury Fund of the Special Compensation Fund, after appropriate amounts were deducted, for certain payments made on behalf of the employee.
In his findings and order issued on March 6, 2003, the compensation judge awarded benefits for temporary total disability benefits continuing from March 24, 2001, with a portion of those benefits to be deducted and paid to the intervenor as reimbursement for disability benefits paid to the employee in 2001. The judge also awarded reimbursement to the intervenor for payment of medical expenses it had paid on behalf of the employee between 1996 and 2002.
The employer and insurer issued payments to the employee on March 20, 2003, for accrued temporary total disability benefits and interest, after making deductions for attorney fees and for appropriate reimbursement to the intervenor. They paid attorney fees and reimbursed costs to the employee=s attorney. The employer and insurer, however, erroneously neglected to institute payment of ongoing weekly temporary total disability benefits to the employee, as ordered by the compensation judge, but they rectified that mistake by June 18, 2003, by reinstating ongoing payment of temporary total disability benefits. In recognition of their 11-week delay in payment of ongoing temporary total disability benefits, the employer and insurer paid, to the employee, a penalty for late payment of benefits pursuant to Minn. Stat. ' 176.225, subd. 1. The employer and insurer withheld attorney fees from the penalty payment and from ongoing payments to the employee until a total of $13,000.00 was reached and paid to the employee=s attorney.
On March 24, 2003, the employer and insurer filed a petition to discontinue benefits, seeking to discontinue benefits for temporary total disability and instead to provide for payment of benefits for permanent total disability. The petition was set for hearing on June 19, 2003, before the compensation judge. By Findings and Order issued, served and filed on June 24, 2003, the compensation judge found that the employee had been permanently totally disabled as of March 24, 2001. The judge allowed the employer and insurer to retroactively characterize the temporary total disability benefits paid since 2001 as permanent total disability benefits, and to claim an offset on account of the employee=s receipt of Social Security benefits. The offset resulted in a credit for excess benefits paid to the employee, and the judge allowed the employer and insurer to recoup that credit or overpayment, in the future, as allowed by statute.
On May 15, 2003, the employee filed a claim petition seeking the imposition of various penalties for failure to pay pursuant to the compensation judge=s order. He also sought payment of additional attorney fees pursuant to Minn. Stat. ' 176.081, subd. 7a, based on his assertion that after the employer and insurer rejected the employee=s pre-hearing settlement offer, the employee obtained a judgment that was at least as favorable as the proposed settlement. The employee later amended his claim, seeking payment of benefits based on 13% permanent partial disability (PPD) of the whole body.
Having already paid benefits based on 5% PPD, the employer and insurer issued payment for the remaining 8% PPD rating. The employee=s remaining claims for penalties and attorney fees were addressed at hearing on August 31, 2004. In his Findings and Order served and filed September 13, 2004, the compensation judge denied the employee=s claims for penalties and additional attorney fees in their entirety. The employee appeals.
The employee claimed entitlement to various penalties against the employer and insurer; the compensation judge denied the employee=s claims, concluding that the timing and amount of the employer and insurer=s benefit payments did not give rise to a claim for penalties. The employee appeals, contending that the employer and insurer failed to timely issue payments required both by their receipt of the independent medical examiner=s report and by the compensation judge=s findings and order of March 6, 2003.
At the hearing, the employee outlined the various delays or actions that he asserted gave rise to a penalty claim. The employee contended that the employer violated the statutory requirements for payment of benefits by failing to timely pay:
1. Disability benefits and medical expenses after receipt of Dr. Vorlicky=s IME report of June 18, 2001;
2. Minimum ascertainable permanency benefits after receipt of Dr. Vorlicky=s IME report of June 18, 2001;
3. Temporary total disability benefits and attorney=s fees as ordered in the Findings and Order of March 6, 2003;
4. Ongoing temporary total disability benefits between March 20-June 18, 2003;
5. Ongoing attorney=s fees; and
6. Partial reimbursement of attorney fees payable under Minn. Stat. ' 176.081, Subdivision 7.
The Minnesota Workers= Compensation Statute and Minnesota Rules refer to penalties for failure to comply with an order or failure to make payments on a timely basis. Minn. Stat. ' 176.225 provides for a penalty for delays in payment of benefits, and outlines circumstances in which payment of a penalty is appropriate, as follows:
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% 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 compensation; 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, "frivolously" means without a good faith investigation of the facts or on a basis that is clearly contrary to fact or law.
Minn. Stat. ' 176.225, subd. 1. The issue before us is whether the compensation judge erred by concluding that the employer=s actions, including the timing of the benefit payments and amounts paid to or on behalf of the employee, did not give rise to a penalty claim as outlined in the provisions of Minn. Stat. ' 176.225.
In his findings and order, the compensation judge addressed each of the employee=s claims for penalties. He first addressed the claim that benefits were erroneously delayed after receipt of Dr. Vorlicky=s IME report. The employee claims that once the employer and insurer received that report, they were required to pay, at a minimum, for medical expenses incurred by the employee following his 1986 injury. The judge found that the employer and insurer=s failure to pay weekly and/or medical benefits subsequent to the receipt of Dr. Vorlicky=s June 18, 2001, medical report did not give rise to the imposition of penalties. The employer and insurer retained specific, valid defenses to the employee=s claims which were separate and distinct from any medical opinions, including contentions that the employee=s disability resulted from injuries or conditions unrelated to his 1986 work injury, that his claim lacked medical support, that he had failed to conduct a reasonable and diligent job search within his restrictions during the period of claimed disability, and that the employee had withdrawn from the labor market. Whether a penalty is appropriate under Minn. Stat. ' 176.225 is a question of fact for the compensation judge. Maxfield v. Stremel Mfg. Co., slip op. at 5, 7 (W.C.C.A. Jan. 6, 1999). Substantial evidence supports the compensation judge=s finding that the lack of payment of disability benefits and medical expenses following receipt of Dr. Vorlicky=s medical report did not give rise to a claim for penalties.
As to the payment of permanency benefits, the employee claims that the employee and insurer were required to make a minimum lump sum payment of PPD upon receipt of Dr. Vorlicky=s medical report. The compensation judge concluded that the employer and insurer did not fail to pay a minimum permanency benefit upon receipt of that doctor=s report, for two reasons. First, no permanency benefits were payable at that point since those cannot be paid concurrently with the temporary total disability benefits already being paid. Second, the employer and insurer had earlier paid the employee permanency benefits based on a 5% disability of the whole body rating, which ostensibly was the equivalent of more than the 20% liability assessment assigned by Dr. Vorlicky to the employee=s 1986 injury. The compensation judge could reasonably conclude that no additional permanency benefits were due after receipt of Dr. Vorlicky=s medical report.
Concerning the employee=s claims that payments ordered in the 2003 Findings and Order were not timely paid, the compensation judge found that no grounds existed for penalties. The compensation judge concluded that the employer complied with the March 6, 2003, Findings and Order by withholding, from the employee=s temporary total disability benefits, the amount of disability benefits paid by the intervenor and by reimbursing the intervenor as required by the judge=s order. The judge specifically found that the calculations made by the employer and insurer were Aaccurate and appropriate@ and did not give rise to the imposition of penalties. We agree. The employer and insurer were required to reimburse the intervenor and the amounts paid were correct.
As to the employer and insurer=s failure to commence ongoing payment of weekly benefits as ordered by the Findings and Order, since the employer and insurer earlier admitted that delay, properly self-imposed a penalty and interest due for the late payments, and paid the penalty and interest to the employee, no further penalty was owed for delay of those particular benefits.
The employee also argues that a penalty was due for late payment of subdivision 7 attorney fees. The employer argues that the employee=s 2001 claim petition did not definitively seek the partial reimbursement of fees under subdivision 7, and the employee did not seek these fees at the hearing. However, although the judge=s March 6, 2003, findings and order did not direct the employer and insurer to pay subdivision 7 attorney fees, the employer later issued payment of such fees, even though not specifically ordered to do so by the findings and order, pursuant to Costello v. Clay County, slip op. (W.C.C.A. Nov. 22, 2002). The judge concluded that Aunder this factual scenario the Court specifically finds that no appropriate basis exists for the imposition of penalties for the late payment of subdivision 7 fees.@ We agree.
We, therefore, affirm the compensation judge's denial of the employee=s claim for penalties.
Claim for Attorney Fees Pursuant to Minn. Stat. ' 176.081, subd. 7a
The employee also claimed entitlement to an additional award of attorney=s fees pursuant to Minn. Stat. ' 176.081, subd. 7a, arguing that because he obtained benefits in excess of the amount of the settlement proposal he made in September 2001, he was entitled to a payment of additional attorney fees. Minn. Stat. ' 176.081, subd. 7a, in effect on the date of the employee=s injury (and since repealed) provides, in part, as follows:
At any time prior to one day before a matter is to be heard, a party litigating a claim made pursuant to this chapter may serve upon the adverse party a reasonable offer of settlement of the claim, with provision for costs and disbursements then accrued. . . .
* * *
If an offer by an employee is not accepted by the employer or insurer, it shall be deemed withdrawn and evidence thereof is not admissible, except in a proceeding to determine attorney=s fees. Notwithstanding the provisions of subdivision 7, if the judgment finally obtained by the employee is at least as favorable as the offer, the employer shall pay an additional 25 percent, over the amount provided in subdivision 7, of that portion of the attorney=s fee which has been awarded pursuant to this section that is in excess of $250.00.
By letter dated September 14, 2001, counsel for the employee proposed to then counsel for the employer and insurer a to-date settlement whereby the employer and insurer would agree to pay to the employee the sum of $20,000.00 with the employer and insurer then paying ongoing temporary total disability benefits. Of the $20,000.00, $7,000.00 would be paid to the intervenor to resolve the intervenor=s interest. The employer and insurer did not accept that offer, and the matter went to hearing on October 24, 2002, following which the employee was awarded temporary total disability benefits continuing from March 24, 2001.
The employee argues that the judgment he received from the findings and order was clearly Aat least as@ favorable as the proposed settlement. He bases that argument on (1) the approximately $70,000.00 in indemnity benefits awarded, from which $16,000.00 was deducted and paid to the intervenor, (2) the award of subdivision 7 attorney fees and interest, and (3) the additional indemnity benefits paid since the hearing date in 2002.
The compensation judge evaluated this claim, and specifically addressed it in his findings. Whereas the employee calculated all benefits awarded since March 24, 2001, the compensation judge limited his calculations to the approximately six-month period encompassing the date that temporary total disability benefits commenced, March 24, 2001, through the date of the settlement offer, September 14, 2001. The judge stated that
Under the terms of the findings and Order of March 6, 2003 the Court found the employee to be entitled to weekly compensation benefits from and after March 24, 2001. Between March 24, 2001 and September 14, 2001 the awarded weekly compensation benefits totaled approximately $16,000.00. With repayment of the weekly benefits paid by the intervenor, the employee, as a result of the Findings and Order of March 6, 2003, netted approximately $6,000.00.
The Court specifically finds that the judgment finally obtained by the employee for weekly benefits payable through mid-September 2001 was in fact less favorable than the settlement offer of September 14, 2001. As such an award of attorney=s fees pursuant to Minn. Stat. ' 176.081, subd. 7a is not appropriate.
(Findings Nos. 20 and 21.)
We conclude that the compensation judge reasonably applied a method of calculation that limited the benefits to a discrete time period for comparing the amount of settlement offer to the amount obtained from the hearing. To do otherwise in this case, for example as outlined by the employee=s brief, artificially expands the dollar amounts to be compared. As the compensation judge=s findings, based on his calculation method, are not clearly erroneous and are supported by the record, we affirm the finding that the judgment finally obtained by the employee for weekly benefits, payable through mid-September 2001, was in fact less favorable than the settlement offer of September 14, 2001. Accordingly, we affirm the judge=s denial of the employee=s claim for attorney=s fees pursuant to Minn. Stat. ' 176.081, subd. 7a.
 Dr. Vorlicky=s report is not included in the hearing record.
 See Minn. Stat. ' 176.131(1), in effect at the time of the employee=s 1986 work-related injury (repealed for dates of injury on or after July 1, 1992).
 See Minn. R. 5220.2550, subp. 1(B)(1), which states as follows:
When the extent of permanent partial disability is disputed, upon receipt of a medical report containing a permanency rating or medical information from which the insurer may determine a rating, the employer or insurer must, within 30 days:
(1) make a minimum lump sum payment or begin periodic payments based on the minimum undisputed permanent partial disability ascertainable; . . .
 Minn. Stat. ' 176.021, subd. 3, provides that permanent partial disability is payable in addition to but not concurrently with compensation for temporary total disability.
 Reference to Asubdivision 7 attorney fees@ relates to the provision in Minn. Stat. ' 176.081, subdivision 7, for partial reimbursement of contingency attorney fees allowed when an employer or insurer Aunsuccessfully resists the payment of compensation or medical expenses,@ or provision of rehabilitation benefits. If an employee has retained an attorney at law who successfully procures payment on behalf of an employee or obtains resolution of a rehabilitation dispute, the employee is allowed an additional award of attorney fees Aequal to 30 percent of that portion of the attorney=s fee which has been awarded pursuant to this section that is in excess of $250.@