Thursday, April 28, 2016

Castellanos is Decided by Supreme Court

Another chapter in the Florida workers' compensation attorney fee debate has closed (or is it the first shoe to drop?). 

The Florida Supreme Court on April 28, 2016 rendered its decision in Castellanos v. Next Door Company. The case had been pending 540 days since the oral argument on November 5, 2014. It is 55 pages long, including one concurring decision and two dissenting opinions. Justice Pariente is the author of the majority opinion concluding that Section 440.34(1) is "unconstitutional under both the Florida and United States Constitutions as a violation of due process." She was joined by Labarga, Quince, and Perry. Justice Lewis concurred with his own opinion. 

Just a week before, the Florida First District Court of Appeal concluded that the same statutory provision, Section 440.34(1) was unconstitutional in the setting of fees paid by an injured worker, Martha Miles, and a union that sought to pay fees on her behalf. The first question voiced to me following the Court's publication of Castellanos was "what impact does this have on Miles." That is an intriguing question. One that the Court in Castellanos discussed briefly (characterizing the First District decision as an "as applied" decision). While the debate as to whether is is "as applied" or facial, the decision in Castellanos may arguably make that debate moot in most or all instances. 

The Castellanos Court noted that the First District certified questions of great public importance regarding workers' compensation attorney fees. The Court rephrased the question before it answered. Further, the Court noted that this issue affects "numerous claimants," because in the 540 days the case has been pending decision, "the First District has certified that its disposition in eighteen additional cases passes upon the same question."

The opinion concludes that Section 440.34 "presumes that the ultimate (statutory) fee will always be reasonable to compensate the attorney, without providing any mechanism for refutation." Finding a historic foundation in reasonableness, the Court held "the right of a claimant to obtain a reasonable attorney’s fee when successful in securing benefits has been considered a critical feature of the workers’ compensation law since 1941."

It is worth noting for historical reference that Section 440.34 limited fees with the use of a statutory presumption in the 1990s. That presumption could be overcome with proof that the presumptive fee was not reasonable. In 2003, that presumptive fee calculation was legislatively rendered mandatory. With that amendment, however, the legislate retained language regarding the reasonableness of attorney fees. The section stated: "A fee, gratuity, or other consideration may not be paid for a claimant in connection with any proceedings arising under this chapter, unless approved as reasonable by the judge of compensation claims or court having jurisdiction over such proceedings. (emphasis added). 

The seemingly mandatory constraint of the "formula fee" was challenged in various cases early this century, and ultimately the Florida Supreme Court considered the implications of Section 440.34 in Murray v. Mariner Health, 994 So.2d 1051, (Fla. 2008). The Court avoided the constitutional questions raised (which bore similarities to those raised in Castellanos) and decided Murray on the basis of statutory interpretation. It concluded that the presence of "as reasonable" resulted in a statutory ambiguity, and the Court held that "reasonable," that is hourly, attorney fees could therefore be appropriately awarded or approved under the 2003 fee statute. 

The Florida Legislature returned in 2009 and amended Section 440.34 removing the "as reasonable" language. This amendment thereby rendered the "formula fee" as a strict constraint on the calculation of claimant's attorney fees. 

The Castellanos Court expounds on its perception of workers' compensation generally. It noted that "from its outset, the workers’ compensation law was designed to assure, as the current legislative statement of purpose provides, 'the quick and efficient delivery of disability and medical benefits to an injured worker.'" The Court noted that this intention is stated in Section 440.015, the "preamble" to the statutory process. 

However, the Court concluded that "while the Legislature has continued to enunciate this purpose, in reality, the workers’ compensation system has become increasingly complex to the detriment of the claimant." As a result, the Court noted, the injured worker "depends on the assistance of a competent attorney to navigate the thicket." The Court held that "it is undeniable that without the right to an attorney with a reasonable fee, the workers’ compensation law can no longer “assure the quick and efficient delivery of disability and medical benefits to an injured worker.” 

The Supreme Court is clear in it holding, that "it is the irrebuttable statutory presumption—not the ultimate statutory fee awarded in a given case—that we hold unconstitutional." This is a distinction with which the dissenters took issue. The Court concluded that its holding of facial unconstitutionality is in part based upon its conclusion that "the possibility of an as applied challenge to the statute on a case-by-case basis, would be both unworkable and without any standards for determining when the fee schedule produces a constitutionally inadequate fee." This is likely in part due to the fact that the trier of fact in Florida workers' compensation, the Judges of Compensation Claims, lack authority to make any findings regarding constitutionality. Thus, in an "as applied" process, any finding of constitutional infirmity would necessarily have to be made on a case-by-case process before the Florida First District Court. 

Procedurally, the Court's decision provides a clear guidance to the marketplace. The Court quashed (invalidated) "the First District’s decision upholding the patently unreasonable $1.53 hourly fee award, and direct that this case be remanded to the JCC for entry of a reasonable attorney’s fee."

The Court reiterated, from Murray, the conclusion that the legislature's constraint on fees was "to ensure that the injured worker, rather than his or her attorney, would actually receive the bulk of the compensation award." To accomplish this, the Court said, "the Legislature, from the original adoption of the Act, gave the JCC or relevant administrative body, however denominated at the time, approval oversight of the amount a claimant paid to his attorney." This evolved in 1941 to encompass such fees being paid by the employer/carrier in some instances, rather than by the injured worker. 

The Court noted that an injured worker cannot proceed in Florida workers' compensation without an attorney due to the complexities of the workers' compensation law, quoting the First District saying "a claimant proceeding 'without the aid of competent counsel' would be as 'helpless as a turtle on its back.'" (citations omitted). 

The Court reiterated that attorneys fees in Florida workers' compensation are effective in two distinct purposes. First, the fees "enable an injured employee who has not received an equitable compensation award to engage competent legal assistance." While there are those who believe that workers' compensation is a legal system defined and refined by statute, the Court clarifies that it is in fact an equitable system. But, additionally, the fees "penalize a recalcitrant employer." Some might call this a marriage of the proverbial "carrot" (attracting counsel to such representation) and the proverbial "stick" (deterring unwarranted or unreasonable resistance to claims).

The Castellanos analysis concludes that lack of judicial discretion, the absence of "reasonableness" establishes "a conclusive irrebuttable presumption that the formula will produce an adequate fee in every case." Concluding this outcome is "not true," which is perhaps based on the evidence in this case (an analysis of "as applied" constitutional challenges) and noting the complexities of constitutional challenge in light of the limited authority of Judges of Compensation Claims, the Court concluded the result is "a chilling effect on claimants’ ability to challenge employer/carrier decisions to deny claims for benefits and disrupt the equilibrium of the parties’ rights intended by the legislature in enacting section 440.34.” 

The Court restated its previous test "for determining the constitutionality of a conclusive statutory presumption, which the Court says encompasses the fee schedule provided in section 440.34: "(1) whether the concern of the Legislature was 'reasonably aroused by the possibility of an abuse which it legitimately desired to avoid'; (2) whether there was a 'reasonable basis for a conclusion that the statute would protect against its occurrence'; and (3) whether 'the expense and other difficulties of individual determinations justify the inherent imprecision of a conclusive presumption.' (citations omitted). 

The Court seems to conclude that prong one is arguably present, but then explains that "Rules Regulating The Florida Bar already prevent against excessive fees." And, further, that the Supreme Court "does not condone excessive fee awards." The Court analyzed seemingly assuming "that the first prong of the due process test is satisfied because the Legislature desired to avoid excessive fees."

In discussing the second prong, the court referred to Miles. The Court concluded that Miles is "an as-applied constitutional challenge to sections 440.105 and 440.34," and that the combination of these violates the injured worker's "right to free speech, free association, petition, and right to form contracts." Thus, the Court reiterates “that the criminal penalties of section 440.105(3)(c), Florida Statutes, are unenforceable against an attorney representing a workers’ compensation client seeking to obtain benefits under chapter 440, as limited by other provisions.” The Court notes that section 440.105 is not being reviewed in Castellanos

Returning to the second prong, the Court concludes that section 440.34 cannot "actually serve this function—as required by the second prong of the test." The Court says that "excessive fees can still result under the fee schedule, just as inadequate ones can." and thus, regardless of the intent in prong one, the statute fails in prong 2. 

Furthermore, the Court held that the justifications in the third prong were not present in this analysis. It noted that "indeed, the JCC in this case actually made these individual determinations, but the inherent imprecision of the conclusive presumption prevented both the JCC and the First District from doing anything about the unreasonableness of the resulting fee." Because this "presumption" thus precludes deviation, and finding that it fails the conclusive presumption test stated, the Court held that "the statute violates the state and federal constitutional guarantees of due process."

The Court also foreshadows (according to some already prognosticating out there in the ether of social media) its future decisions in other pending workers' compensation reviews. The Court notes that several constitutional challenges are pending before the Court, and that "in each of these cases, there was either an outright denial of benefits or multiple defenses raised by the E/C, and in each case, the attorney for the E/C expended a number of hours equal to or exceeding the hours expended by the claimant’s attorney." Whether this portends any particular outcome in other current challenges, the Court explains this is evidence of an inequity in the compensation for claimant and defense attorneys. 

Of note, the Supreme Court somehow came across the annual reports generated by this office pursuant to statutory mandate. I received an email already congratulating me that someone at least is reading our reports!

The remedy for this unconstitutional statute, the Court holds, is revival of the previous (the last constitutional) statute. Thus Castellanos revives section 440.34 as amended in 2003 (and as it existed when upheld by Murray). This may have implications for the First District's decision in Miles, which last week cited Lundy and reiterated that section 440.34 was appropriate as to fees payable by the employer/carrier. 

So, now "a JCC must allow for a claimant to present evidence to show that application of the statutory fee schedule will result in an unreasonable fee." The Court emphasized "that the fee schedule remains the starting point, and that the revival of the predecessor statute does not mean that claimants’ attorneys will receive a windfall." As the 2003 statute did not contain "factors" for deviation from the statutory "starting point," the Court in Murray concluded that the factors it enunciated in Lee Engineering were appropriate for consideration. In Castellanos, the Court reiterated its deference to those Lee Engineering standards. 

Justice Canady dissented, saying that the Legislature's "policy determination" is "that there should be a reasonable relationship between the value of the benefits obtained in litigating a workers’ compensation claim and the amount of attorney’s fees the employer or carrier is required to pay to the claimant." He says that this policy violates no "constitutional provisions." Justice Canady contends that Castellanos, in this regard, is based on assumption "without any reasoned explanation." He concedes that the "policy (Secction 440.34(1)) may be subject to criticism," but that "there is no basis in our precedents or federal law for declaring it unconstitutional."

Justice Canady states that the "three part test" application in Castellanos "is unjustified because the majority misunderstands the test and misapplies it in the context presented by this case." He says the application of that test "simply ignores this fundamental point" ("disproportionate fees is the very evil that the Legislature sought to eliminate.") He predicts that "the line of reasoning adopted by the majority unquestionably has the potential to become a 'virtual engine of destruction for countless legislative judgments' previously understood to be constitutional."

Justice Polston also dissented from the opinion. He says that the "majority has rewritten the statute to avoid the standard governing facial challenges." He states that the Court has reinstated Murray and turned "facial constitutional review completely on its head." This, he says rewrites "the 2009 statute." He contends that there is no facial infirmity, but concedes "the possibility of a successful as-applied constitutional challenge." He notes, however, that no such as applied challenge was raised in Castellanos. The conundrum of as applied challenges in a system presided over by judges without authority for such decisions seems to play a part in both the majority and this dissent. 

Justice Polston notes that “for a statute to be held facially unconstitutional, the challenger must demonstrate that no set of circumstances exists in which the statute can be constitutionally applied.” (citations omitted). He also noted that “when we review the constitutionality of a statute, we accord legislative acts a presumption of constitutionality and construe the challenged legislation to effect a constitutional outcome when possible.” (citations omitted). He contends that by employing the presumption analysis to a statute that creates no presumption, the Court has inappropriately evaded these two long-held maxims that otherwise govern constitutional analysis. An analysis that he explains would, in this case, results in the precise conclusion reached by the First District Court of Appeal, that section 440.34 is constitutional on its face. 

Does Castellanos settle all the questions? There will be many that feel it does. With the same essential effect of Murray, the return of hourly attorney fees, many may feel the questions are answered. Some may still wonder, despite the Supreme Court's characterization of Miles being "as applied," whether there remains any efficacy of section 440.105(3)(c). Contrarily, others are already questioning whether Miles has any practical effect in light of Castellanos and the return to hourly "reasonable" fees (one asked me "why would a claimant pay a fee when the reasonable fees from the e/c are back?"). 

There remain questions. Whether this decision telegraphs the long-awaited outcome in Westphal remains to be seen, despite the prognostications of the tweeters and others. Stahl is a case in which the claimant sought diminution or elimination of exclusive remedy was also decided by the Court. Not in substance, but the Supreme Court decided to discharge the case without decision, essentially leaving the First District's decision intact. And finally, a more difficult questions to be debated. That is, will the Legislature race to a special session on workers' compensation? I cannot count how many times I heard that promised over the last 3 years. It will be interesting to watch. 

I said it in September 2014: There's No Other Place I Wanna Be. These are interesting and intriguing times. For those who do not watch or participate in workers' compensation, it is a little respected and little noticed field. But within it are truly some of the greatest legal minds I have ever met (I would argue they are among the greatest period). I am constantly impressed with their ingenuity, imagination, intellect and perseverance from so many perspectives. I appreciate and respect them as individuals and feel absolutely humbled to work with so many of them. It will be interesting to see where they take us all next.