FRANK A. HANEGMON, Employee/Cross-Appellant, v. NATIONAL STEEL PELLET and MINNESOTA SELF-INSURER'S SECURITY FUND, adm'd by SEDGWICK CLAIMS MGMT., Employer-Insurer/Appellants.

 

WORKERS= COMPENSATION COURT OF APPEALS

OCTOBER 6, 2004

 

No. WC04-140

 

HEADNOTES

 

ATTORNEY FEES; CALCULATION OF BENEFITS - STATUTORY INTEREST; STATUTES CONSTRUED - MINN. STAT. ' 176.225, SUBD. 5.  Attorney fees are compensation for purposes of interest under Minn. Stat. ' 176.225, subd. 5, and Minn. Stat. ' 176.221, subd. 7, and interest on compensation that is due is mandatory under the statute, regardless of whether entitlement to such fees has been pleaded or ordered; and, notwithstanding the facts that entitlement to interest was not expressly pleaded in the claim petition and the judge had on an unrelated legal basis denied the penalties that were claimed under Minn. Stat. ' 176.225, where payment of previously ordered fees was found by the compensation judge to have been unreasonably and inexcusably delayed, the WCCA affirmed the compensation judge=s decision to award interest on the fees at issue, but it modified that award to be assessed at a rate provided for in Minn. Stat. ' 176.221, subd. 7, rather than at the 12% rate provided for in Minn. Stat. ' 176.225, subd. 5.

 

PENALTIES; STATUTES CONSTRUED - MINN. STAT. ' 176.225, SUBD. 5.  Awards of additional Acompensation@ authorized under section 176.225 are clearly penalties by their inherent nature, notwithstanding the arguably more express Apenalty@ language of other statutes providing for payment of penalties to the Division rather than to the employee, and the court found no reason to reverse the compensation judge=s decision to deny penalties under section 176.225 by application of Minn. Stat. ' 79A.10, subd. 2, which protects the Minnesota Self-Insurer=s Security Fund against liability for certain penalties.

 

EVIDENCE - RES JUDICATA.  Final orders of a compensation judge may be modified only by the Workers= Compensation Court of Appeals--either by timely appeal or by petition to vacate - or by the supreme court, not by a compensation judge.  Where one compensation judge=s award of subdivision 7 fees, arguably contrary to an earlier stipulation for settlement, was a final order, and where a subsequent compensation judge=s award of a credit for the payment of those Subdivision 7 fees pursuant to that award constituted an effective modification of that award, the subsequent judge=s award of a credit was reversible error, the only proper procedural remedy being a petition to the WCCA to vacate the award of the fees.

 

Modified in part, affirmed in part, and reversed in part.

 

Determined by Pederson, J., Johnson, C.J., and Wilson, J.

Compensation Judge: Gregory A. Bonovetz

 

Attorneys:T. Michael Kilbury, Peterson, Logren & Kilbury, St. Paul, MN, for the Appellants.  Thomas R. Longfellow, Longfellow Law Firm, St. Paul, MN, for the Cross-Appellant.

 

 

OPINION

 

WILLIAM R. PEDERSON, Judge

 

The Minnesota Self-Insurer= Security Fund appeals from the compensation judge's award of interest on delayed payments of attorney fees, and the employee cross-appeals from the judge=s denial of penalties for unreasonable delay in those payments and from the judge=s award of a credit to the Minnesota Self-Insurer=s Security Fund for amounts previously paid to the employee by the self-insured employer under Minn. Stat. ' 176.081, subd. 7, pursuant to an order of a compensation judge in a previous proceeding but contrary to terms of an earlier award on stipulation for settlement.  We modify the award of interest in keeping with this decision, we affirm the denial of penalties, and we reverse the award of a credit for the payments under Subdivision 7.

 

BACKGROUND

 

On August 29, 1981, Frank Hanegmon sustained a work-related injury to his spine in the course of his employment as a laborer with National Steel Pellet, which was self-insured at the time against workers= compensation liability.  Mr. Hanegmon [the employee] was twenty-eight years old at the time and was earning a weekly wage sufficient to entitle him to the then-maximum compensation rate of $226.00.  National Steel Pellet [the employer] subsequently acknowledged liability for the injury and commenced payment of benefits.  Subsequent to the injury, the employee returned to work with the employer in a number of capacities until November 19, 1999, when he became medically restricted from continuing and subject to the recommendation of a surgeon that he undergo an anterior/posterior lumbar fusion at L4-5 and L5-S1, which he underwent on November 23, 1999.

 

On January 29, 2001, the employee and the self-insured employer filed a stipulation for settlement, pursuant to which the employer agreed, in part, to institute payment of permanent total disability benefits commencing November 19, 1999, and to pay the employee an additional lump sum of $5,000.00 in exchange for full, final, and complete settlement of all potential claims related to the employee=s August 29, 1981, work injury.Under terms of the stipulation, the parties agreed that $1,000.00 was to be withheld from the $5,000.00 lump sum, to be paid as attorney fees to the employee=s counsel, and that ongoing attorney fees were to be withheld from the employee=s weekly compensation and paid to counsel for the employee until such time as a total of $13,000.00 had been withheld and paid as attorney fees.  Also under terms of the stipulation, the employee agreed in part to waive all claims and potential rights to partial reimbursement of attorney fees pursuant to Minn. Stat. ' 176.081, subd. 7.  On that same date, January 29, 2001, Compensation Judge Gregory Bonovetz issued an Award on Stipulation approving the parties= settlement.

 

Pursuant to Judge Bonovetz=s Award on Stipulation, the self-insured employer properly withheld appropriate attorney fees from the employee=s weekly compensation, but it did not then pay those withheld amounts to the employee=ss counsel.  Eventually, some two years later, on March 7, 2003, the employee=s Fees, in which he not only requested release of the $11,408.00 in fees currently being withheld by the employer under terms of the 2001 settlement but also applied for payment of an additional award to the employee pursuant to Minn. Stat. ' 176.081, subd. 7 [Subdivision 7 fees].  Also on March 7, 2003, the employee filed a claim petition, claiming entitlement to penalties pursuant to Minn. Stat. ' 176.225, subds. 1 and 5, based on the employer=s failure to timely pay attorney fees pursuant to terms of the January 2001 Award on Stipulation.  On March 20, 2003, written notification was given by counsel for the self-insured employer, apparently together with a third-party administrator, Gallagher Bassett Services,^[1] that it had no objection to the Statement of Attorney=s Fees and was Awilling to release the $11,408.00 withheld attorney fee claimed by [the employee=s attorney].@  On the following day, however, the employer filed its Answer to Employee=s Claim Petition, denying the claim to penalties.  On March 24, 2003, Compensation Judge Jerome Arnold issued an Order Determining Attorney=s Fees, in which he directed the employer to pay to the employee the requested subdivision 7 fees, and it is apparently conceded that those payments were made within fourteen days of Judge Arnold=s order.  In May of 2003, the employer was apparently sold, and by June 14, 2003, the employer had apparently entered into a bankruptcy proceeding,^[2] pursuant to which, under Minn. Stat. ' 79A, the Minnesota Self-Insurer=s workers= compensation obligations.

 

At a pretrial telephone conference on November 3, 2003, prior to hearing of the employee=s claim petition for penalties, counsel for the Security Fund reiterated denial ofliability for any penalty and, based on the employee=s waiver of entitlement to Subdivision 7 fees in the parties= January 2001 settlement, claimed entitlement to a credit for Subdivision 7 fees that had been paid pursuant to Judge Arnold=s March 24, 2003, Order Determining Attorney=s Fees.The matter came on for hearing via telephone conference on January 20, 2004.  At the hearing, it was acknowledged that the $11,408.00 in attorney fees that were at issue had been released and paid to the employee=s attorney subsequent to the employer=s attorney=s letter of March 20, 2003, but no evidence was introduced as to the date on which those attorney fees were paid.Issues at hearing included the following: (1) the employee=s attorney=s entitlement to penalties for the long delay in payment of attorney fees; (2) the Security Fund=s responsibility for such penalties, based as they would be on the self-insured employer=s failures under the settlement; (3) the Security Fund=s entitlement to recoup subdivision 7 fees paid under Judge Arnold=s March 2003 order but contrary to terms of the January 2001 settlement; and (4) the Security Fund=s liability for interest on the long-delayed attorney fees.

 

By Findings and Order filed January 23, 2004, Compensation Judge Gregory Bonovetz specifically concluded at uncontested Finding 11 as follows:

 

Having been ordered to withhold and pay ongoing attorney=s fees under the terms of the Stipulation for Settlement of January 29, 2001, having neglected or unreasonably delayed payment of those attorney=s fees for in excess of two years and having inexcusably delayed making payment of the awarded attorney=s fees the self-insured employer is subject to the 30% penalty provision of Minn. Stat. ' 176.225, subd. 1 and the 25% penalty provision of Minn. Stat. ' 176.225, subd. 5.

 

On the basis of that finding, the judge went on to state in Order 1 that he Aspecifically finds the self-insured employer to be liable for penalties under Minn. Stat. ' 176.225, subd. 1 totaling $3,422.40 and under subd. 5 totaling $2,852.00.@  In that same order, however, the judge went on to state that,

 

under the provisions of Minn. Stat. ' 79A.10, subd. 2 the Minnesota Self-Insurer=s Security Fund Ashall not be liable for the payment of any penalties assessed for any act or omission on the part of any person other than the Security Fund . . . provided in Chapter 176 unless the Security Fund or its appointed administrator would be subject to penalties under Chapter 176 as a result of the actions of the Security Fund or its administrator.@

 

The judge did conclude, however, finding no evidence that the employer had paid any interest on the delayed fees, that the Security Fund was liable for 12% statutory interest on the late-paid attorney fees, since Section 79A did not expressly protect it from such liability.  Further, the judge concluded also, at Order 3, that, in light of the close-out of subdivision 7 fees in the parties= January 2001 settlement, the Security Fund was entitled to a credit for Subdivision 7 fees that the self-insured employer had paid pursuant to what Judge Bonovetz referred to as Athe erroneous order@ issued by Judge Arnold on March 24, 2003.  The Security Fund appeals from the judge=s award of interest on the delayed fees, and the employee cross-appeals from the judge=s refusal to award penalties and from the judge=s award to the Security Fund of a credit for subdivision 7 fees paid by the self-insured employer.

 

STANDARD OF REVIEW

 

A[A] decision which rests upon the application of a statute or rule to essentially undisputed facts generally involves a question of law which [the Workers= Compensation Court of Appeals] may consider de novo.@  Krovchuk v. Koch Refinery, 48 W.C.D. 607, 608 (W.C.C.A. 1993).

 

DECISION

 

1.  Interest

 

The Security Fund contends that the compensation judge=s award of interest on the employee=s attorney=s delayed attorney fees is legally erroneous, in that any entitlement to interest in this matter would have been derivative from the only matter before the court on the claim petition - penalties under Minn. Stat. ' 176.225.They note that subdivision 1 of that section makes no provision for interest at all, and they contend that the provision for interest in Subdivision 5 would pertain only to unpaid awards of penalties rather than to unpaid awards of attorney fees, asserting further that there is, in fact, no authority anywhere in the statute for an award of interest on late-paid attorney fees.  Moreover, they argue, the judge=s award of interest was improper because no claim for interest was pleaded in the claim petition.  We are not persuaded that the judge erred in awarding interest on the late-paid fees, but we modify the judge=s award from 12% under Minn. Stat. ' 176.225, subd. 5, to an appropriate award of interest under Minn. Stat. ' 176.221, subd. 7.

 

We note initially that interest on benefits that are due is payable under the statute whether or not entitlement to interest has been pleaded or specifically awarded.  Helquist v. Kentucky Fried Chicken, slip op. (W.C.C.A. Oct. 19, 1993), citing Crimmins v. NACM N. Central Corp., 45 W.C.D. 435 (W.C.C.A. 1991) (interest pursuant to Minn. Stat. ' 176.221, subd. 7, is mandatory); cf. Moseychuk v. Holzer=s Imported Car Servs., Inc., 44 W.C.D. 441, 444 (W.C.C.A. 1991) (statutory interest is payable for an award of benefits previously ordered, even if it was not specifically ordered by the compensation judge making the award).  Here, although Judge Bonovetz did not order any fees in the context of his decision, fees were admittedly due and owing, and interest was clearly identified as an issue by the parties.  Thus, the employee=s attorney=s entitlement to interest on his adjudicated attorney fees is not defeated by any failure to assert a claim for such interest in the claim petition.  Nor do we find merit in the Security Fund=s argument that overdue attorney fees by their nature do not qualify for the interest afforded other overdue entitlements under the statute.  As we have stated elsewhere, A[w]e see no reason to distinguish between a late payment of compensation or benefits and a late payment of attorney fees incurred to obtain statutorily-provided benefits, especially when fees were ordered to be paid following a hearing on attorney fees.@  Borgan v. Bob Hegland, Inc., slip op. (W.C.C.A. July 8, 2004).  Minn. Stat. ' 176.221, subd. 7, provides in part,

 

If the claim of the employee or dependent for compensation is contested in a proceeding before a compensation judge or the commissioner, the decision of the judge or commissioner shall provide for the payment of unpaid interest on all compensation awarded.

 

Minn. Stat. ' 176.221, subd. 7 (emphasis added).We construe attorney fees to be Acompensation@ under the statute and the interest provisions of the statute to be as mandatory in regard to such fees as in regard to other benefits.  Nor is the employee=s claim for attorney fees derivative of his claim for penalties.

 

Although, contrary to the position of the Security Fund, we have concluded that statutory interest is due on the employee=s attorney=s attorney fees, we conclude as well that the applicable interest is not that 12% that is awardable under Minn. Stat. ' 176.225, subd. 5, on Aany sum ordered by the department to be paid [that] is not paid when due.@  The sum ordered paid in this case was ordered paid by Compensation Judge Arnold, not by Athe department,@ as would be required for assessment of the 12% rate under Minn. Stat. ' 176.225, subd 5.  Instead, the applicable rate would be that provided for in Minn. Stat. ' 176.221, subd. 7, which provides in part that A[a]ny payment of compensation . . . not made when due shall bear interest from the due date to the date the payment is made at the rate set by section 549.09, subdivision 1.@  Minn. Stat. ' 176.221, subd. 7.  On that conclusion, and under all of the circumstances of this case, we modify the compensation judge=s award of 12% interest under Minn. Stat. ' 176.225, subd. 5, to an award Aat the rate set by section 549.09, subdivision 1,@ as provided for under Minn. Stat. ' 176.221, subd. 7.

 

2.  Penalties

 

Minn. Stat. ' 79A.10, subd. 1, provides that the Security Fund Ashall assume the workers= compensation obligations of an insolvent private self-insurer,@ but subdivision 2 of that section expressly provides,

 

Notwithstanding subdivision 1, the security fund shall not be liable for the payment of any penalties assessed for any act or omission on the part of any person other than the security fund or its appointed administrator, including, but not limited to, the penalties provided in chapter 176 unless the security fund or its appointed administrator would be subject to penalties under chapter 176 as the result of the actions of the security fund or its administrator.

 

It was on the basis of this provision in subdivision 2 of the statute that the compensation judge denied the employee=s petition for an award under Minn. Stat. ' 176.225.The employee contends on cross-appeal that his entitlement to an award under section 176.225 under the facts of the case was clear and confirmed by findings of the compensation judge and that, contrary to the conclusion of the judge, the Security Fund is responsible for payment of such an award notwithstanding the language of Minn. Stat. ' 79A.10, subd. 2, in that, pursuant to its own language, an award under section 176.225 Ais actually that of additional compensation rather than a penalty.@^[3]  We are not persuaded.

 

We acknowledge that awards that are required to be made to an employee under Minn. Stat. ' 176.225, subd. 1, for an employer=s unreasonable, vexatious, or neglectful delay in payment of benefits, are referred to within that subdivision only as additional Acompensation,@ not as penalties, whereas, as the employee has noted, the payments that are required to be made to the Department of Labor and Industry and to the commissioner for untimely commencement of benefits and improper filing, under sections 176.221 and 176.231, respectively, are expressly referred to within that statute as Apenalties.@ Based on that contrast in language, the employee argues that Apenalties@ are only those payments that must be paid to the Department as opposed to those that must be paid to an employee.He argues under this theory that the language of Minn. Stat. ' 79A.10, subd. 2, might be used by the Security Fund to shield it from obligation to pay certain penalties to DOLI under sections 176.221 and 176.231 but may not be used to shield it from paying additional awards to an employee under section 176.225.  We conclude, however, that the awards authorized under section 176.225 are clearly penalties by their inherent nature, nor have they ever been construed otherwise.Indeed, the employee himself has referred to them as such in his own claim petition.  Moreover, beyond its heading, and contrary to the suggestion of the employee, Subdivision 5 of section 176.225 expressly references Apenalties paid pursuant to this section.@  We see no reason to conclude that the specific limitation in Minn. Stat. ' 79A.10, subd. 2, does not apply to the penalty-type provisions of Minn. Stat. ' 176.225, subds. 1 and 5.  Therefore we affirm the compensation judge=s denial of penalties in this case.

 

3.  Credit for the Subdivision 7 Fees

 

Although the parties= settlement of January 2001 had provided that the employee was waiving Subdivision 7 fees, Compensation Judge Arnold nevertheless awarded Subdivision 7 fees in his order of March 24, 2003, which the self-insured employer duly paid without appealing.  In his decision on January 23, 2004, Compensation Judge Bonovetz awarded to the Security Fund a credit for Subdivision 7 fees that had been paid under Compensation Judge Arnold=s order.The employee contends now that Judge Bonovetz erred in that award of a credit, arguing that a compensation judge has no authority to effectively reverse a final award of a previous compensation judge, that once Judge Arnold=s award became final without appeal it became res judicata with regard to the issue litigated.  Moreover, the employee suggests, Judge Arnold=s award was arguably not contrary to the settlement in the first place, since, by the time of that award, the self-insured employer had itself violated the agreement, by failing to pay attorney fees pursuant to terms of that agreement, thereby in effect rendering the agreement void.  Finally, the employee suggests that it is patently unjust for the Security Fund to receive a credit for moneys overpaid by the employer.  We agree that Judge Bonovetz had no authority to order the credit, absent at least a successful petition to vacate Judge Arnold=s award of subdivision 7 fees.

 

Final orders of a compensation judge may be modified only by this court--either by timely appeal or by petition to vacate--or by the supreme court, not by a compensation judge.  In this case, Judge Arnold=s award of subdivision 7 fees in his March 2003 Order Determining Attorney=s Fees was a final order, and Judge Bonovetz=s award of a credit for the payment of those subdivision 7 fees constituted an effective modification of that order.  Therefore we reverse Judge Bonovetz=s award of a credit to the Security Fund for subdivision 7 fees paid by the self-insured employer pursuant to the order of Judge Arnold.  Should either party see a need to correct Judge Arnold=s award of subdivision 7 fees in his March 2003 Order Determining Attorney=s Fees, the proper remedy would be a petition to this court to vacate that award.