Minnesota Supreme Court Provides Clarification Regarding Workers' Compensation Attorney Fee Claims
Court Also Reemphasizes Appellate Courts’ Standards of Review in Workers’ Compensation Cases
On November 30, the Minnesota Supreme Court issued a decision in Lagasse v Horton, clarifying the standards used in Minnesota workers’ compensation cases to assess awards of contingency fees and partial reimbursement of contingent attorney fees. The Court also reaffirmed and emphasized the standard of appellate review the Workers’ Compensation Court of Appeals (WCCA) should use and the standard the Supreme Court should use when reviewing WCCA decisions.
Horton sustained a compensable upper extremity injury while working for Aspen while EMC provided Aspen with workers’ compensation coverage. Horton’s treating provider completed a Health Care Provider Report providing a rating for permanent partial disability (PPD) for brachial plexopathy. EMC questioned the rating. Horton retained an attorney and signed a retainer agreement allowing for a 20% contingency fee on disputed benefits. The parties attempted mediation but could not settle the case. In August 2018 the employee’s attorney filed a claim petition alleging, among other things, entitlement to permanent partial disability benefits based upon a 64.2% PPD rating from the treating doctor. The employer and insurer filed an answer admitting liability for the upper extremity injury but denying the extent of PPD rated. They also claimed and affirmatively alleged the work injury may not be a cause of the employee’s condition. The employer and insurer set up an IME, and the IME doctor not only agreed with the treating doctor’s PPD rating, he gave a higher rating. The employer and insurer’s attorney sent an email to the claimant’s attorney advising they would pay the PPD rated by the treating doctor “(and more)” if he withdrew the claim petition. The employee subsequently terminated his attorney’s representation.
The employee’s attorney filed three separate statements of attorney fees, but the court dismissed each one as premature because the claimant was still receiving temporary total disability benefits. When the PPD benefits became payable, the attorney filed his fourth statement of attorney fees.
During this period, the employee requested PPD benefits in a lump sum and asked the insurer not to withhold attorney fees. In response, the insurer filed a motion requesting that the judge issue an order on withholding of fees. The judge issued an order requiring fees to be withheld pending a determination regarding disputed fees.
In April 2021 the parties appeared for a hearing before the judge to resolve the dispute over attorney fees. After the hearing the judge concluded the PPD benefits were genuinely disputed, that the attorney was entitled to a contingent fee and to reimbursement of his costs and disbursements and that the employee should receive partial reimbursement of attorney fees under Minn. Stat. §176.081, subd. 7 (“subd. 7 fees”).
The employee appealed to the WCCA and the insurer filed a notice of cross-appeal solely on the issue of subdivision 7 fees. WCCA reversed the compensation judge’s award of contingent fees and subdivision 7 fees. The WCCA found no genuine dispute existed over the payment of PPD benefits and that the attorney took no action that resulted in the employee being paid PPD benefits. Thus, they concluded there was no basis for an award of fees to the attorney. The attorney appealed.
The Minnesota Supreme Court reversed the WCCA. The Supreme Court, interpreting the plain language of the attorney fees statute, concluded that an answer to a claim petition may be sufficient to give rise to a “genuinely disputed claim” and that it did so in this case. The Court did not hold that an answer will always give rise to a genuinely disputed claim. The court found that the existence of a genuinely disputed claim or portion of claim will hinge on two factors: “(1) is there an actual conflict between the parties as to any claim or portion of the claim? (2) do the employer and insurer have sufficient time information to take a position on liability?”
The Supreme Court also took time to explain and reaffirm the standards under which the WCCA reviews decisions made by workers’ compensation judges and the standards by which in the Supreme Court reviews factual determinations of the WCCA. The Court explained, after reviewing the standard of review it first set forth in Hengemuhle and its offspring, described the WCCA’s scope of review as follows:
1. The WCCA reviews the entire record in the case (evidence both favorable and contrary to compensation judge’s findings).
2. The WCCA exercises its judgment and weighs all the evidence to determine if the compensation judge’s findings and order are supported by substantial evidence.
3. If the findings are supported by substantial evidence, then the WCCA “must” defer to the compensation judge.
4. If they are not, then the WCCA “may” substitute its own findings.
5. Further, if the compensation judge’s findings are supported by substantial evidence, the WCCA’s deferral to those findings still permits the WCCA to make additional findings that do not conflict with the compensation judge’s findings, so long as those additional findings are also supported by substantial evidence in view of the entire record.
According to the Supreme Court, when they review a decision of the WCCA, they will apply the following metrics:
(1). If the WCCA affirms the findings of the compensation judge, or makes additional findings that do not conflict with compensation judge’s findings, Hengemuhle instructs that the Supreme Court view the facts in the light most favorable to the affirmed or additional findings of the WCCA; and
(2) The Supreme Court cannot disturb those findings unless they are “manifestly contrary to the evidence”, where the evidence clearly requires reasonable minds to adopt a contrary conclusion.
In cases of conflict between the WCCA findings and the trial court findings, cases the Supreme Court called “the substitution cases”, the Court has a more complex standard of review. In such cases, they have to answer two questions:
(1) Whether WCCA was correct in setting aside the compensation judge’s findings, which it may do only if there is “no evidence” in the record that a reasonable mind might accept as adequate to support the compensation judge’s finding. If the answer to this question is “no” the Supreme Court will reverse the WCCA.
(2) If the answer to question 1 is “yes”, and the WCCA properly set aside the compensation judge’s findings, then the Supreme Court will ask whether the substituted findings of the WCCA should be affirmed under the manifestly contrary to the evidence standard.
After reviewing and clarifying the standard of review to be applied by the WCCA and the Supreme Court in workers’ compensation cases, the Court addressed whether the employee’s claim was “genuinely disputed” under the two-prong test noted above. The court found there was an actual conflict over the claim and the employer and insurer had sufficient time to take a position on liability. The Supreme Court concluded that the compensation judge’s findings were supported by substantial evidence, and the WCCA was required to uphold the compensation judge’s findings. The WCCA erred when it substituted its own findings that there was not a genuine dispute.
The Supreme Court also reviewed the denial of subdivision 7 fees. The Supreme Court noted that an award of contingency fees does not automatically trigger an entitlement to subdivision 7 fees the court must engage in a separate determination To obtain subdivision 7 fees, an employee must establish that the “employer unsuccessfully resisted payment and (2) that the attorney secured a benefit for the claimant. The Supreme Court reversed and remanded to the trial court for findings on subdivision 7 fees.
Lagasse will likely supplant Hengemuhle as the “go to” case explicating the standards of review applied by the WCCA and the Minnesota Supreme Court. The Supreme Court clarified and amplified the Hengemuhle scope of review to be applied by the WCCA and emphasized the WCCA’s statutorily limited powers.
Lagasse also clarified that when a compensation judge assesses an award of contingency fees and subdivision 7 fees, Minnesota workers’ compensation statute requires that they engage in two separate inquiries.
>When assessing entitlement to contingency fees, the judge must determine: (1) was there an actual conflict between the parties as to any claim or portion of the claim?; and (2) did the employer and insurer have sufficient time information to take a position on liability?
>When assessing entitlement to subdivision 7 fees, the court must determine, (1) whether the employer unsuccessfully resisted payment; and (2) whether the attorney secured a benefit for the claimant.
This decision should provide litigants with guidance regarding the standards to determine attorney fees and subd. 7 fees. It also provides counsel for employers and insurers with guidance in how to avoid paying attorney fees and subd. 7 fees when unwarranted by the circumstances. Lagasse emphasizes that the attorney fee statute requires that an award of any attorney fees “shall be based solely upon genuinely disputed claims or portions of claims”. Minn. Stat. §176.081, subd. 1c. Although Lagasse involved a dispute over contingency fees, the rationale and statutory requirements apply equally to an award of hourly fees such as Roraff or Heaton fees. The statute employs broad language in this regard, “Allowable fees under this chapter shall be based solely upon genuinely disputed claims or portions of claims…” The Supreme Court noted that if an employer and insurer truly have concerns about liability and whether there is a “genuine dispute”, they could request an extension of time to answer the claim petition for up to an additional 30 days as allowed under statute. They could also seek a mutual agreement to an extension to get the information needed. Finally, if they must file an answer, they should consider asserting in the answer that that have not had sufficient time and/or information to make a liability determination.