Thursday, May 31, 2012

New CA Lien Regs May Provoke Unwanted Activity

There has been a lot of grumbling in California since the new lien regulations were released last week, in particular about new Title 8, section 10582.5.

In short, what I have been hearing is that lien claimants are spooked that if they do not request hearings on their liens prior to the effective date of that section, August 1, 2012, that they may be subject to summary dismissal.

One business owner that I know personally, whose business operates primarily on a lien basis, told me that he is ramping up to file 4,000 Declarations of Readiness (DOR) prior to 8/01.

For those unfamiliar with California workers' compensation practice, a DOR is the document that requests the Workers' Compensation Appeals Board (WCAB) district office set a hearing.

So if only one business in California files 4,000 DORs, how many more will follow?

Another lien based business told one of my employees that they are preparing 10,000 DORs to file prior to the August 1 implementation date.

Between only two lien based businesses district offices will all of a sudden be overwhelmed with hearing requests. How does this extrapolate to all of the other lien based businesses? I think it doesn't bode well for the system.

This can have several effects from the obvious, taking up hearing dates that otherwise should be devoted to resolving cases-in-chief, to overburdening the computer network that accepts filings and sets the court calendar (EAMS).

Certainly there are some of you who have no empathy for lien claimants and certainly none is being sought in this editorial - but the possible impact on the California adjudicatory system can be devastating; the exact opposite consequence of what was intended by this new rule.

Section 10582.5 permits the dismissal of liens for lack of prosecution. The problem is that the section does not provide guidance as to what a lack of prosecution is.

Does it mean that the claim has not been brought to hearing? Does it mean that there have been no collection efforts by the lien claimant? What kind of evidence is necessary to satisfy a judge that a lien claimant has been diligent in seeking payment?

The new lien regulation was promulgated to deal with a unique, and despicable practice - namely the resurrection of liens that had lied dormant primarily because the underlying lien claimant had already been paid fee schedule for medical services.

The lien stays on the court records because there is no withdrawal of it. Unscrupulous businesses then either "buy" the liens or fish through WCAB files to find these dormant liens then seek to extort money from defendant carriers/employers on the liens.

These unscrupulous operators will "settle" the liens for pennies on the dollar because there is no real expense behind the lien claim since the underlying vendor has already been paid fee schedule and has written off the balance of the claim; there is no underlying expense behind the lien any longer. When told that they can get a few more pennies out of the claim the original vendor capitulates because it is, essentially, "free money".

The carrier/employer, having already closed its file and released reserves, does not want to go back through the process to reactivate the claim and hire counsel to defend against the practice, so they too "settle" to get the file finally and fully closed.

This practice has come to be known as "zombie liens" - they are "zombie" because they lay dormant for years only to come back to life at some point to inflict injury or death to an unsuspecting victim.

The intention of 10582.2 was to dispose of this practice.

The unintended consequence is that those with legitimate claims may also get entangled in the process and this has them spooked into action.

The one way to ensure that a legitimate claim does not get subject to summary dismissal is to immediately request a hearing, lest it be deemed that the lien claimant has not sought to prosecute its claim. Thus the intention of the two businesses I write of above filing 14,000 DORs - if a DOR is filed it can not be argued that there is a lack of prosecution.

But a DOR instigates adjudicatory action taking up time and resources of the adjudicatory body.

I don't know what the numbers are, but if only two lien claimants are going to seek 14,000 hearings, imagine what the numbers are going to be. I can only believe that the system will soon be overwhelmed with requests for hearings by lien claimants and with all the myriad "good cause" excuses the judges are going to have their hands full trying to figure out what is a legitimate claim and "good cause" and what is a zombie attempt at new life.

Another unintended consequence is the continued full employment of defense attorneys. The amount of billable work that can be churned spitting out Petitions for Dismissal is going to be too tempting to resist.

10582.2 spells out the documentation that is required for a Petition for Dismissal. From my prior defense days I can say with some authority that most carriers will not have properly complied with this documentary requirement, which means that defense counsel will gladly provide this service.

The flood of paperwork that will be forthcoming will put a New York City ticker tape parade to shame.

These new lien regs didn't appear out of thin air. They were proposed many, many months ago and were subject to some public comment. There was comment provided that predicted what I explain in this editorial but maybe the WCAB has something else in mind. Maybe they are prepared for this reaction.

I hope so. At a time when California is actively talking about "reform" again, this would be a serious distraction from what the conversation should really be about.

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