KLAUS KRUCZEK, Employee/Petitioner, v. HOERNER WALDORF CO., and LIBERTY MUT. INS. CO., Employer-Insurer, and SPECIAL COMPENSATION FUND/SECOND INJURY REIMBURSEMENT.
WORKERS= COMPENSATION COURT OF APPEALS
DECEMBER 10, 2007
VACATION OF AWARD - MISTAKE. Where there is insufficient basis for concluding that the employee was incompetent to enter in a settlement, good cause did not exist to vacate the employee=s award on stipulation on grounds of mistake.
Petition to vacate award on stipulation denied.
Determined by: Rykken, J., Stofferahn, J., and Pederson, J.
Attorneys: David A. Blaeser, Woodbury, MN, for the Petitioner. Randee S. Held, Law Offices of Bakken and Robinson, St. Paul, MN, for the Respondents. Sara Stoltman, St. Paul, MN, for the Special Compensation Fund.
MIRIAM P. RYKKEN, Judge
The employee has petitioned this court to vacate an award on stipulation, served and filed on June 18, 2007, on the basis that a mutual mistake of fact existed at the time of the settlement concerning the employee=s competency to enter into a settlement agreement. Finding insufficient cause to vacate the award, we deny the employee=s petition.
On February 22, 1974, while employed by Hoerner Waldorf Company [the employer], Mr. Klaus Kruczek [the employee], sustained an admitted work-related injury in the nature of bilateral carpal tunnel syndrome. At that time, the employer was insured for workers= compensation liability in Minnesota by the Insurance Company of North America [the insurer]. On April 6, 1978, the employee was registered with the Special Compensation Fund, based on a rating of 20% permanent partial disability of each wrist.
On June 2, 1978, the employee again sustained a work-related injury in the nature of bilateral carpal tunnel syndrome. At that time, the employee was 30 years old and earned a weekly wage of $209.28. The employee remained off work following his 1978 injury, and the employer and its then insurer, Liberty Mutual Insurance Company, paid the employee ongoing temporary total disability benefits. Based on the employee=s registration with the Special Compensation Fund, and in accordance with Minn. Stat. ' 176.131, the Fund reimbursed the employer and Liberty Mutual for the temporary total disability benefits and medical expenses paid to the employee. In June 1995, the employee, employer, insurer and Special Compensation Fund entered into a settlement of the employee=s claim on a full, final and complete basis; that settlement was approved by an award on stipulation served and filed June 22, 1995. The employer and insurer stipulated that the employee was permanently totally disabled as a result of his injuries of February 22, 1974, and June 2, 1978, and paid $175,000.00 in exchange for settlement of the employee=s claims on a full, final and complete basis, with the exception of future medical expenses, for which the employee=s claims remained open. The Special Compensation Fund reimbursed the settlement payment to the employer and insurer.
Shortly after the award was issued in 1995, the employee invested his settlement proceeds through a local investment brokerage, and by 1997, the employee=s entire investment was depleted. Through litigation with the brokerage firm and by resolution reached by arbitration, the employee recovered a limited portion of his investment. In 2002, the employee petitioned the court for vacation of the 1995 settlement, on the basis of mutual mistake of fact as to the employee=s competence to enter into a settlement agreement in 1995. In support of his petition, the employee submitted multiple medical records, including a report issued by Dr. Steven Smith, M.A., Psy. D., licensed psychologist, who had examined and treated the employee in 1995. In a letter dated January 19, 2000, Dr. Smith expressed his opinion concerning the employee=s competency in 1995. His letter stated, in its entirety:
I am writing at the request of my client Mr. Klaus Kruczek. I originally saw him in May of 1995. At that time he was delusional and unable to rationally make important decisions regarding his financial welfare.
The employer and insurer objected to the petition, and scheduled the employee to undergo an independent psychiatric examination with Dr. Lori Suvalsky, held on April 29, 2002. According to Dr. Suvalsky=s report of May 16, 2002, the employee reported to her that he earlier had numerous delusional beliefs and possibly visual hallucinations about his wife, which resulted in him being very jealous, accusatory and suspicious of his wife. He advised Dr. Suvalsky that he no longer has these delusional beliefs about his wife, and felt very guilty about the way he had treated her earlier when he did entertain those beliefs. He described his current mood as sad, depressed and angry, and described nightmares that he still occasionally experienced.
Dr. Suvalsky found the employee to be Aalert and oriented in all spheres.@ She stated that A[h]is thought processes were goal-directed, but quite concrete and it appears that he has either learning disabilities or is of below average intelligence. His cognition was generally intact, however.@ Dr. Suvalsky diagnosed Amajor depression, recurrent and in partial remission with past history of psychotic features.@ Dr. Suvalsky found Mr. Kruczek to be mentally competent, as he was able to demonstrate a clear understanding of what he did both in 1995 and what he was currently doing, and also understood the consequences of his actions.
Dr. Suvalsky also concluded that some evidence suggested that the employee=s intellectual capacity, both at the present time and at the time of the 1995 settlement, was such Athat he may have had some difficulty understanding all the terms of the settlement.@ Dr. Suvalsky based this more on the employee=s long-standing learning disability rather than on any depression and/or delusional disorder that he had at the time he entered into the settlement. She also concluded that the employee had been aware he was entering into a settlement agreement in 1995, and she found no evidence in the employee=s records or in her interview with him that he was either incompetent at the time he entered into that settlement, or in need of a conservator at that time. She explained that, in her opinion, the employee Awas able to enter in to an agreement competently in 1995, as his delusional system did not encompass any features that would impair his ability to make this decision.@ She also found no evidence of a connection between the employee=s delusions and his competence to make business decisions, stating that:
In general, people with delusional disorder or other psychiatric illness are not necessarily incompetent simply because they hallucinate or maintain delusional beliefs. It appears that the encapsulated nature of Mr. Kruczek=s delusional system makes it essentially not relevant to business decisions he may have made at the time.
* * *
I see no evidence through the records or through interview in Mr. Kruczek=s recollection of the events that he could have been determined to be incompetent [at the time of the settlement] and did not see any cause for him having had a conservator at that time.
Following a review of the parties= submissions and an oral argument held to address the petition, this court issued a decision denying the employee=s petition to vacate, concluding that there was insufficient cause to vacate the award. Kruczek v. Hoerner Waldorf Co., 63 W.C.D. 101 (W.C.C.A. 2002).
On June 18, 2007, the employee filed another petition to vacate the 1995 award on stipulation, again asserting that there was a mutual mistake of fact as to the employee=s competence to enter into a settlement agreement in 1995. In support of his renewed petition, the employee submitted those medical records he had submitted in conjunction with his initial petition. The employee also submitted a report issued by Dr. Smith on January 17, 2007, in which he outlined the employee=s condition in 1995 and the conclusions he had reached in 1995 concerning the employee. In response to questions posed to him about whether the employee had the mental capacity to understand and appreciate what he was doing at the time he entered into the 1995 settlement, Dr. Smith stated his opinion that the employee could not have understood the ramifications of what he agreed to regarding the 1995 settlement. Dr. Smith stated that the employee was so completely obsessed with his delusions in 1995 that he would have been unable to give his decision sufficient consideration, and that
in his sleep deprived state, he was often experiencing psychotic thinking that would have clearly outweighed any rational judgment. In his deluded state, he would have seen the acquisition of funds as an opportunity to purchase electronic monitoring equipment to watch over his wife. He would not have given a second thought to long-term ramifications of this choice.
The employer and insurer requested that Dr. Suvalsky review the matter, including reviewing the employee=s medical records, her earlier report, and Dr. Smith=s updated report. In a report she issued on July 20, 2007, Dr. Suvalsky outlined background information and the assessments she had made in 2002 following her examination of the employee. She explained that in 2002 she had assumed that the employee was correctly diagnosed as being delusional in 1995, an assumption that was consistent with the employee=s report of the situation at the time of his 2002 interview. Dr. Suvalsky explained that she had assessed him in 2002 for his competencyBin other words, his capacity to understand the ramifications of what he was engaging in at the time that he made this decision. She explained that
I did ask him direct questions regarding his understanding of what it would mean to take that settlement. It is irrelevant what Mr. Kruczek planned to do with the money he got from the settlement, as this is not a determining factor in whether or not somebody is competent. Mr. Kruczek understood that he was making a settlement such that he could not revisit this again with the workers= comp company, and that his case would simply be closed at that point without them owing further funds. He was able to express this understanding to me quite clearly and was able to tell me that he understood that that was the condition of accepting the lump sum at the time that he did so. While it may or may not be true that his plan was to use this money in order to purchase surveillance equipment to spy on his wife, that does not mitigate whether or not he understood the ramifications in terms of his workers= comp case of taking the settlement.
Dr. Suvalsky also commented that Dr. Smith=s 1995 records did not include a reference to how the employee intended to use his settlement funds, and so if there had been a more in-depth discussion between Dr. Smith and the employee in 1995, that discussion was not included in Dr. Smith=s chart notes.
Oral argument was held to address the employee=s current petition. We have again reviewed all medical exhibits submitted by the parties, including Dr. Smith=s and Dr. Suvalsky=s more recent medical reports, as well as the deposition testimony provided by the employee and his wife in 2002.
Res Judicata Issue
The employer and insurer argue that this court=s decision in 2002 has res judicata effect on the outcome of this proceeding, arguing that the employee has presented the same arguments in his 2007 petition to vacate as those presented in his 2002 petition. The doctrine of res judicata precludes litigation of issues and claims that were litigated and decided in an earlier decision. See, e.g., Fischer v. Saga Corp., 498 N.W.2d 449, 450, 48 W.C.D. 368, 369 (Minn. 1993), citing 3 Larson, The Law of Workman=s Compensation ' 79.72(f) (1992) (ARes judicata does not apply if the issue at stake was not specifically decided in the prior proceedings.@). See also Westendorf v. Campbell Soup Co., 243 N.W.2d 157, 158, 28 W.C.D. 460, 460 (Minn. 1976). Collateral estoppel, which is a form of res judicata whereby an initial judgment is conclusive in a subsequent suit, between the same parties, as to issues finally decided in the initial action. Travelers Ins. Co. v. Thompson, 163 N.W.2d 289 (Minn. 1969). Principles of res judicata are applicable in workers= compensation proceedings. See, e.g., Alexander v. Kenneth R. LaLonde Enters., 288 N.W.2d 18, 31 W.C.D. 407 (Minn. 1980); Abrahams v. University of Minn., Duluth, 61 W.C.D. 103 (W.C.C.A. 2001).
In the present case, the employee has submitted very similar arguments to those he presented in 2002. In support of his current petition, however, he has submitted an updated report from one of his treating psychologists, Dr. Steven Smith, and the employer and insurer submitted an updated report from Dr. Suvalsky. Five years have passed since the employee submitted his earlier petition, and the employee has framed his arguments in a slightly different fashion than in 2002. Although the employee again requests that the same 1995 stipulation for settlement be vacated, that petition must be considered by this court, in view of the additional evidence submitted. We conclude that our 2002 decision does not have res judicata effect on the current proceeding, and therefore have reviewed the current petition anew.
Petition to Vacate Award on Stipulation
This court may set aside an award on stipulation Afor cause@ pursuant to Minn. Stat. '' 176.461 and 176.521, subd. 3 (1994). ACause@ is limited to four grounds, including a mutual mistake of fact; newly discovered evidence; fraud; or a substantial change in medical condition since the time of the award Athat was clearly not anticipated . . . at the time of the award.@ Minn. Stat. ' 176.461; Franke v. Fabcon, Inc., 509 N.W.2d 373, 376, 49 W.C.D. 520, 523 (Minn. 1993); compare Krebsbach v. Lake Lillian Coop. Creamery Ass=n, 350 N.W.2d 349, 36 W.C.D. 796 (Minn. 1984).
Under Minn. Stat. ' 176.461, as amended, effective July 1, 1992, this court=s authority to vacate an award on the ground of mistake Aextends not to any mistake, but only to a mutual mistake of fact by the parties to the stipulation.@ Shelton v. Schwan=s Sales Enters., 53 W.C.D. 110, 113 (W.C.C.A. 1995) (emphasis in original), summarily aff=d (Minn. Sept. 5, 1995); see also Malz v. Natrogas, Inc., slip op. (W.C.C.A. Nov. 19, 1996); Eldred v. DeZurik, slip op. (W.C.C.A. Dec. 21, 1994). AA mutual mistake of fact occurs when opposing parties to the stipulation both misapprehend some fact material to their intended settlement of a claim or claims.@ Shelton, 53 W.C.D. at 113. In a mutual mistake case, the inquiry focuses on what the situation was, and what was known at the time of settlement. Franke, 509 N.W.2d at 377, 49 W.C.D. at 525.
The employee bases his petition to vacate on a claim of a mutual mistake of fact at the time the parties entered into the settlement agreement. He argues that he was not mentally competent to understand the nature of his actions and, therefore, to settle his own claim. The employee argues that Aat the time that he entered into and signed the Stipulation for Settlement in April/May of 1995, [he] suffered from delusions and was mentally incompetent to have made such an agreement and entered into such an agreement.@ The employee also argues that at the time of the negotiation and execution of the stipulation for settlement, he was in the midst of severe paranoid delusions and was severely emotionally disturbed, and that A[i]n combination with either learning disabilities and/or below average intelligence, it is impossible to understand how [he] can be deemed to have been mentally competent to have entered into a Stipulation for Settlement in May, 1995.@
The dispositive issue in this case is whether the employee was competent at the time of the settlement. This court has held that when an employee lacks competency to enter into a stipulation for settlement, the contract is null and void. Bernard v. Marvin Lumber, 41 W.C.D. 512 (W.C.C.A. 1988). See, e.g., Sondrol v. Del Hayes & Sons, Inc., 47 W.C.D. 659 (W.C.C.A. 1992); Musta v. Ellison Meats, 43 W.C.D. 219 (W.C.C.A. 1990). Minn. Stat. ' 176.521, subd. 1, specifies that an agreement to settle any claim Ais not valid if a guardian or conservator is required under section 176.092 and an employee . . . has no guardian or conservator.@ Minn. Stat. ' 176.092, subd. 1, provides that an employee who is an incapacitated person as that term is defined in Minn. Stat. ' 524.5-102, subd. 6, Ashall have a guardian or conservator to represent the interests of the employee . . . in obtaining compensation according to the provisions of this chapter.@
At the time he entered into the settlement, the employee was not represented by counsel, nor had he been determined to require a guardian or conservator. At his deposition taken on May 21, 2002, the employee testified that he did not consult an attorney regarding the settlement, as he did not trust an attorney at that time. He apparently dealt directly with the employer and insurer and their counsel, when negotiating the settlement. The employee testified that he mentioned his settlement to his wife and daughter but that he did not advise them of the specific details of the settlement. The employee testified that he did not read the stipulation for settlement at the time he signed it, and that he was in a hurry to sign it. However, he wrote Ayes@ in response to five out of seven questions in the stipulation concerning his reading and understanding of the terms and nature of the stipulation, and he signed the stipulation.
At his deposition, the employee testified about the steps he took to invest his settlement proceeds, and his understanding of the importance of careful investment of those proceeds, due to his future financial needs. That testimony is outlined in more detail in our earlier decision. Kruczek v. Hoerner Waldorf Co., 63 W.C.D. 101 (W.C.C.A. 2002). It is evident that the employee comprehended the final nature of the settlement payment, in that he advised the financial representative that he needed to Alive on it@ and invest it, and use the proceeds for his spending money and house payments.
Relying on medical records generated in October 1994 and May 1995, the employee argues that he was delusional and irrational at the time he signed the stipulation for settlement, and that he did not understand his need for competent counsel at that time. In reference to that portion of the statute that states a settlement is null and void if a person who requires a guardian or conservator has none at the time he entered into a settlement, the employee argues that he should not, now, at this point, be required to show that he needed either a guardian or conservator at the time of the settlement in order to prove the nullity of the settlement.
Our review of the medical records submitted with the employee=s petition shows that the employee was hospitalized for approximately one week in October 1994 for psychiatric treatment. At that time, the employee and his wife reported that he had received treatment and counseling for depression for one year, had lost weight, experienced decreased energy and loss of sleep, and was quite anxious. The employee also reported his multiple concerns and extreme distrust about his wife=s behavior; the interviewing psychiatrist, Dr. Janet Zander, diagnosed delusional disorder. A Minnesota Multiphasic Personality Inventory (MMPI) assessment conducted on October 10, 1994, was interpreted to suggest longstanding, serious emotional disturbance; the evaluating psychologist explained that A[i]ndividuals who obtain similar profiles are often described as ruminative, obsessive, and overly ideational.@
Additional medical records in evidence include evaluation reports prepared by Dr. Smith as well as David Johnson, M.D., both of Behavioral Health Services, Inc., after their consultations with the employee on May 5 and 12, 1995. The employee apparently was brought in for counseling by his wife because of her concern over his paranoid obsession with her behavior. At an examination by Dr. Smith on May 5, 1995, the employee reported delusions he harbored about his wife=s activities, and his frustration when no one believed him. His wife described him as having a controlling and insecure personality. Dr. Smith found the employee to be oriented as to person, place, time and situation, but seemed paranoid and appeared to have below average intellectual ability. Dr. Smith recommended diagnostic testing and an evaluation with a psychiatrist. The primary concern at that initial evaluation was the employee=s delusions about his wife; Dr. Smith commented that the employee appeared Ato be able to function in most areas of his life but [was] highly impaired in his relationship with his wife.@
The employee underwent a MMPI-2 test on May 8, 1995, which was interpreted as being within Anormal limits, despite the background of apparent delusional levels of jealousy.@ The reviewing psychologist commented that individuals Awho suffer from delusions that are primarily persecutory and paranoid in nature are often able to encapsulate such material and produce >normal= MMPIs.@ She also agreed that psychiatric consultation may be helpful.
Dr. Johnson evaluated the employee on May 12, 1995, and reported that the employee was alert and oriented, but very guarded in his interaction. He diagnosed ADelusional Disorder, Jealous Type in that his psychotic symptoms seem to be somewhat circumscribed at this point. Certainly cannot rule out whether or not there is a Schizophreniform Disorder developing and cannot rule out Depressive Disorder with Psychotic Features at this time.@ Dr. Johnson concluded that A[c]ognitively he was able to track the conversation and was able to argue effectively with his wife and stay to the point. We did not attempt to do formal cognitive testing with this gentleman. Insight appears quite poor. Judgment likewise appears poor to fair at best.@ Dr. Johnson prescribed a low dosage trial of Trilafon in order to attempt to resolve the employee=s delusional pattern.
Dr. Smith consulted with the employee on three other occasions in May 1995. His chart notes reflect that he confronted the employee about his obsessive thinking and tried to develop a treatment plan to focus on coping strategies to deal with his fears and pain, but that the employee seemed unwilling. Dr. Smith advised that the employee=s delusions seemed to stem from personality traits, including passive aggressiveness, narcissism and dependence, as well as his disabilities, and recommended additional psychiatric counseling, if appropriate. Dr. Smith also concluded that if this was not workable, then Awill have to D/C [discontinue] as not making progress.@ In a chart note dated December 20, 1996, Dr. Smith stated that ATherapy is contraindicated for [the employee] based upon his level of paranoia and unwillingness to look at personal change or take medication,@ and that, because the employee had made no contact with the office for six months, services were terminated.
The record contains no other medical records or treatment notes until Dr. Smith=s January 19, 2000, letter, referred to above, in which he stated his opinion that in May 1995, the employee Awas delusional and unable to rationally make important decisions regarding his financial welfare.@
We conclude that, based upon our review of the evidence presented, including all medical reports and records, that there is insufficient basis for vacating the stipulation based on a mutual mistake as to the employee=s competence to enter into a settlement. While it is extremely unfortunate that the employee=s investment of his settlement proceeds was lost, we find insufficient evidence to conclude that the employee lacked competence at the time of the settlement, little or no evidence that the employee needed a conservator or guardian when he entered into the settlement, nor any evidence that he has required one since the settlement. At his deposition in 2002, the employee clearly testified about his understanding of the import of his settlement and his need to astutely invest the proceeds because of future living expenses. We see no evidence that both parties misapprehended any fact material to the resolution of the employee=s claim, in other words, that a mutual mistake of fact existed at the time of the settlement. We therefore deny the employee=s petition to vacate the June 22, 1995, award on stipulation.
 According to a Notice of Benefit Payment filed on July 10, 1995, by the time settlement was reached in 1995, the employer and insurer had paid $282,997.79 in indemnity benefits and $25,896.32 in expenses identified as medical, evaluation and training expenses.
 The records generated by Dr. Smith and Dr. Johnson in May 1995 do not reflect any discussion about a settlement of the employee=s workers= compensation claim. References to the employee=s claim included his report to them that he had been disabled since 1978 by carpal tunnel syndrome and had Abeen on workmen=s compensation ever since,@ and that he had not worked outside the home since 1978.
 This court=s authority to vacate is governed by the provisions of the workers= compensation act relating to vacation of awards in effect at the time of the parties= settlement. Franke v. Fabcon, Inc., 509 N.W.2d 373, 49 W.C.D. 520 (Minn. 1993).
 On the copy of the stipulation attached to the petition to vacate, the employee did not answer the first two questions included in the text of the stipulation.