The Lien Lawsuit & Instability

The wraps have finally come off the threatened lawsuit by lien claimants against SB 863's lien fees and automatic dismissal process.

Plaintiffs include:

• Angelotti Chiropractic Inc., which operates as Taft Chiropractic in Woodland Hills. 
• Mooney & Shamsbod Chiropractic Inc. of Palmdale. 
• Christiana Arana & Associates Inc. of Studio City. 
• Joyce Altman Interpreters Inc of Tustin. 
• Scandoc Imaging Inc. of Costa Mesa. 
• Buena Vista Medical Services Inc. of Calabasas. 

Defendants are Gov. Jerry Brown and Attorney General Kamala Harris; Department of Industrial Relations Director Christine Baker; Division of Workers’ Compensation Acting Director Destie Overpeck; and Workers’ Compensation Appeals Board Chairwoman Ronnie Caplane.

The lawsuit alleges:

• Enforcement of the lien activation fee constitutes a taking of private property for public use without just compensation in violation of the 5th Amendment. 
• The fee violates the due process provisions of the 5th and 14th Amendments because it “effectively eliminates plaintiff’s right to seek administrative and judicial vindication of the property rights secured by” the liens. 
• The fee violates the equal protections provisions of the 5th and 14th amendments because it is arbitrarily and with no legitimate governmental purpose applied to independent service providers while insurance companies, health maintenance organizations and certain employer-sponsored benefit plans are exempt. 

The Workers’ Compensation Appeals Board has ruled that a lien must be dismissed if the activation fee is not paid before the time a lien conference is scheduled to start. A provision of Senate Bill 863 also says all liens that have not been activated will be dismissed by operation of law on Jan. 1, 2014.

According to the complaint filed, the plaintiffs have collectively filed at least 32,433 liens, and say many of which are for small amounts in proportion to the amount of the filing fee. One plaintiff has 20,800 liens and can’t afford to pay $2.1 million by the end of the year, the lawsuit says.

I won't get into the merits of this case. There are some issues that I think are winners for the plaintiffs, and I think there are some volatile issues that may entirely destroy the case.

But what about those promised savings in SB 863? A lot of the money (the WCIRB estimated about $480 million) that was estimated to be saved by SB 863 is now in jeopardy.

And what happens if lien fees are deemed unconstitutional, thus drying up a source of income to the Workers' Compensation Revolving Fund, but potentially creating a deficit if those fees are ordered reimbursed to the lien claimants (of course with interest)?

Department of Industrial Relations chairperson, Christine Baker, told the audience at the California Coalition on Workers’ Compensation's 11th annual Conference that the Division of Workers' Compensation has collected more than $15 million in lien fees, and that if the pace of lien fee collections continues then the employer assessment could be reduced by 7.6%.

Plaintiffs at this point are only seeking an injunction against the law, but damages can certainly be entertained in the future, and does not have to be part of this lawsuit - request for reimbursement may occur through several different channels and/or lawsuits.

I've examined before the likelihood of a Constitutional challenge to the lien fee program, and I'm quite certain that the authors and supporters of the program looked at this very carefully before putting it into place.

I don't think anyone can say with any degree of certainty whether or not the court, in this case the United States District Court for the Central District of California, will rule for or against the government or the lien claimants.

I do feel quite strongly, however, that the court will issue at least a preliminary injunction against the process on two points: summary dismissal of liens on 1/1/14, and the automatic dismissal of liens that fail to pay processing fees.

The court will need time to take argument, do research, and understand whether or not a workers' compensation lien arises to the same level as liens for work on ships, or whether any such constriction can apply to liens that had been filed before SB 863.

To rule otherwise would lead to increased chaos, and costs, associated with the unwinding of the process in the event that it is found unconstitutional.

It will be much simpler to provide for the prospective payment of fees in the event that the law is upheld.

But the bigger picture is the credibility of the negotiators of SB 863. Here is a bill that was the product of negotiations between Big Business and Big Labor. There was no input from the community. There was no analysis or opinion sought from those involved in the industry on a daily basis (except for the 6 week road show that, to me, seemed largely ceremonial). There was no communication about alternative plans in the event that this whole thing blows up.

And then we're left with an even bigger mess trying to clean up what gets destroyed by judicial fiat.

The supporters of SB 863's lien provisions state that to the extent SB 863 is delayed or put in doubt more uncertainty about costs going forward is created. I don't buy that argument - this certainly was considered when the bill was being negotiated and drafted. The creators knew there would be challenges, and knew that there was the possibility of judicial intervention, which is why they included a clause that if any part of SB 863 were declared invalid the balance of the bill would still be valid.

No, those involved in SB 863's lien provisions knew that it was a risk, and knew that it, in itself, would create instability. They brought it upon themselves.

The lien problem was a big one before SB 863. If the lien fee and summary dismissal of lien provisions are overturned by the court, liens will be an even bigger problem than ever before, and the pain is going to be wide and acute.