KLAUS KRUCZEK, Employee/Petitioner, v. HOERNER WALDORF, and LIBERTY MUTUAL INS. CO., Employer/Insurer.

 

WORKERS= COMPENSATION COURT OF APPEALS

OCTOBER 16, 2002

 

 

HEADNOTES

 

VACATION OF AWARD - MISTAKE.  Where there is insufficient basis for concluding that the employee was incompetent to enter into a settlement, good cause did not exist to vacate the employee=s award on stipulation on grounds of mistake.

 

Petition to vacate award denied.

 

Determined by Rykken, J., Pederson, J., Stofferahn, J.

 

 

OPINION

 

MIRIAM P. RYKKEN, Judge

 

The employee has petitioned this court to vacate an award on stipulation, served and filed on June 22, 1995, 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. 

 

BACKGROUND

 

On February 22, 1974, while employed by Hoerner Waldorf, 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.  On April 6, 1978, the employee was registered with the Second Injury Fund of 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 the time of his 1978 injury, the employer was insured for workers= compensation liability by Liberty Mutual Insurance Company (Liberty Mutual).  On June 2, 1978, 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 Liberty Mutual paid the employee ongoing temporary total disability benefits.  Based on the employee=s registration with the Second Injury Fund, the employer and Liberty Mutual received reimbursement from the Fund in accordance with Minn. Stat. ' 176.131.  The Fund reimbursed ongoing indemnity and medical expenses to the employer and insurer thereafter until 1995, when the employee, employer, insurer and Special Compensation Fund entered into a settlement of the employee=s claim on a full, final and complete basis.  In that stipulation, which was approved by an award served and filed June 22, 1995, the parties stipulated that the employee was permanently totally disabled as a result of his injuries of February 22, 1974, and June 2, 1978.  The employer and Liberty Mutual 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.^[1]

 

Shortly after the award was issued, 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 with resolution reached by arbitration, the employee recovered a portion of his investment.  The employee now petitions the court for a vacation of the settlement, on the basis of mutual mistake of fact as to the employee=s competence to enter into a settlement agreement in 1995.  The employer and insurer object to the petition.

 

DECISION

 

This court may set aside an award on stipulation Afor cause@ pursuant to Minn. Stat. '' 176.461 and 176.521, subd. 3 (1994).^[2]  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 Assn., 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 of the stipulation was entered into.  He argues that at the time of the settlement he was not mentally competent to understand the nature of his actions and, therefore, to settle his own claim.  The employee argues that Athere has been a mutual mistake on both the Employee=s part and the Employer/Insurer=s part on whether the employee was capable of making a reasonable, rational, reality-based decision to settle his case.@  (Petition to Vacate at 4.)   The employee further argues that neither he nor the employer and insurer appreciated the nature of his mental state at the time of the negotiations and settlement, that it is undisputed that he was Adelusional@ and Airrational@ in May 1995, and that by the very nature of his mental state he could not be expected to understand his need for a conservator, or at the very least competent counsel, to aid him at the time of the settlement.

 

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. ' 525.54, subdivision 2 or 3, 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.^[3]

 

Relying on a discovery deposition of the employee, which includes testimony from the employee on his understanding the importance of the settlement proceeds, the employer and insurer contend that the employee did not need a Alegal guardian@ at the time of the 1995 settlement.   At 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. After reaching settlement, the employee consulted a stock brokerage firm with whom he previously had a checking account, and was referred to a broker with that firm.  He testified that AI went to him [and] I said, >this is the $175,000.  I have to live on it, invest it, make on it for me because that=s my spending money and house payment and all that.@ The employee testified that he understood the settlement payment was his money to live on until he was age 65, and that he also wanted to purchase certain items with the money, including camera equipment.  He also described some discussions he had with his wife and the stock broker about whether to pay off his house mortgage, but evidently based on recommendations from the stock broker regarding tax consequences, he chose not to do so at that time.  The deposition of the employee=s wife reflects that she and the employee discussed the options of a lump sum payment and a structured settlement that would pay monthly benefits, and that the employee chose a lump sum payment.  The employee testified that his investments primarily consisted of stocks bought on margin, and that by 1997 all of his money had been lost.  The employee resolved his claim against the stock brokerage firm through an arbitration agreement, and recovered a limited portion of his investment, only $15,000.00, plus attorney=s fees, out of his entire investment.  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.  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.  An 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 Steven Smith, M.A., Psy. D., licensed psychologist, and David Johnson, M.D., of Behavorial 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.  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. Johnson 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.@  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.  The record contains no other medical records until 2000.  In a letter dated January 19, 2000, Dr. Smith stated:

 

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.

 

On April 29, 2002, the employee was examined at the request of the employer and insurer by psychiatrist Dr. Lori Suvalsky.  In a report dated May 16, 2002, Dr. Suvalsky outlined the history presented by the employee and her review of his medical records.  The employee reported to Dr. Suvalsky 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 feels very guilty about the way he 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 experiences.

 

Dr. Suvalsky found the employee to be Aalert and oriented in all spheres.@  She stated that A[h]is thought processes were Agoal-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@ at Axis I.  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 is currently doing, and also the consequences of his actions.  Dr. Suvalsky concluded that some evidence suggested that the employee=s intellectual capacity, both at the present time and at the time of the 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 found his delusional disorder in 1995 to be Aencapsulated,@ and not relevant to any business decisions he may have made at that time.  As a result, she concluded that the employee was aware he was entering into a settlement agreement, and she found no evidence in the records or in her interview with the employee that the employee was either incompetent at the time he entered into the settlement, or in need of a conservator at that time.  She stated that:

 

[I]t appears that Mr. Kruczek was able to enter into an agreement competently in 1995, as his delusional system did not encompass any features that would impair his ability to make this decision.  As mentioned, his delusional system was quite encapsulated.

 

* * * * *

 

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.  There is no evidence that I could find through this interview or my review of the records that makes a connection between these two things.

 

* * * * *

 

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.

 

We conclude that, based upon our review of the evidence presented, 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.  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, 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.  We therefore deny the employee=s petition to vacate the June 22, 1995, award on stipulation.