Ninth Circuit Concludes Activation Fees are here to Stay
Lien Activation fees were included in the 2012 enactment of SB 863 with the objective to reduce the numerous lien fillings in workers’ compensation. This was a response to the “lien crisis” described in a January 5, 2011 report prepared by the California Commission on Health and Safety and Workers’ Compensation. In an effort to reduce backlogged liens, a $100 activation fee was imposed on lien claimants in the Workers’ Compensation system.
Lien claimant(s) [Plaintiffs] claimed SB 863 violates the Takings Clause, the Due Process Clause and Equal Protection Clause of the United States Constitution.
The Ninth Circuit provided a well laid out overview of the California Workers’ Compensation System. Explanations of accepted and denied claims were discussed and how medical treatment services unpaid were addressed at the WCAB by filing a lien.
Liens were discussed noting providers are entitled to payment if an injury was work-related and medical treatment provided was “reasonably required to cure or relieve the effects of his or her injury.” (Labor Code §4600).
The reason for the filing fee recommended in the Commission Report was to institute a filing fee to deter the filing of liens in general and particularly to stop frivolous lien filings.
Labor Code §4903.06(b) was discussed which provides lien claimant reimbursement for an activation fee if there is: 1) a written demand for settlement clearly noting sum provided 30 days before a DOR; 2) defendant does not accept the settlement within 20 days; and 3) the WCAB awards in favor of the lien claimant equal or greater to the settlement sum.
Jurisdiction was established as well as a discussion of the appropriate levels of review.
Issues / Arguments
The Taking Clause of the Fifth Amendment prohibits the taking of private property “for public use, without just compensation.” Property interests must be “vested” meaning they are not uncertain or discretionary or receipt is not speculative or discretionary. If they are not vested, a government modifying or removing the interest will not constitute a taking.
Workers’ Compensation liens were found wholly statutory and the interests not vested until judgment by the WCAB. Plaintiffs’ argument analogizing with mortgage liens was contrasted. Plaintiffs’ argued the fee was a taking due to the services having already been provided. This was rejected as plaintiffs rendered medical services freely, with the expectation of being compensated through the lien system. Furthermore, plaintiffs can preserve reimbursement per the Labor Code.
Due Process Clause of the Fourteenth Amendment provides that, “no State shall…deprive any person of life, liberty, or property, without due process of law.”
Plaintiffs argued lien activation fees were similar to filing fees struck down for indigent litigants in obtaining a divorce. There were no alternative to the court system to protect theses interests. The court again contrasted plaintiff noting lien claimants are not “thrust” into the judicial process. Liens can be resolved out of court.
The lien activation in WC was more related to filing fees in a conventional litigation scenario where the Supreme Court has rejected due process challenges.
The retroactive nature was found not to violate the Due Process Clause either. These statutes were “justified by a rational legislative purpose” and there was no dispute the legislature intended to operate retroactively.
The Equal Protection Clause of the 14th Amendment provides that, “no State shall…deny to any person within its jurisdiction the equal protection of the laws.”
Plaintiffs argued for Strict Scrutiny application of the facts because the fee trenched on a fundamental right of access to the courts. This was rejected because the lien activation fee did not implicate any fundamental right. The appropriate standard to apply was under rational basis review.
Under rational basis a legislative classification can be upheld if there is a plausible policy reason for the classification and the relationship of the classification is not so attenuated as to render the distinction arbitrary or irrational.
The overall objective and policy was to clear the lien backlog by forcing lienholders to consider whether a lien is meritorious to justify spending the $100 to avoid dismissal. Targeting the biggest contributors on the backlog was found to be an approach that was both incremental and rationally related to a legitimate policy goal.
It was concluded the district court was incorrect in finding a “serious question” exists as to the merits of plaintiffs’ Equal Protection claim. Due to the absence of a “serious question” going to the merits of this case, the preliminary injection was vacated.
Based on the findings of the Equal Protection claim preliminary injunction, the Motion to Dismiss by Defendants denied by the district court was reversed as the ruling of the preliminary injunction was “inextricably intertwined.”
Pendent appellate jurisdiction over the district court’s denial of the motion to dismiss was exercised and reversed.
The Ninth Circuit concluded the district court properly dismissed plaintiffs’ Takings and Due Process claims. Dismissal to without leave to amend was found proper because the claim could not be saved by amendment. The preliminary injunction was vacated based on a finding of abused discretion by the district court. The denial of defendants’ motion to dismiss by the district court was reversed.
Petitions for rehearing may be filed within 14 days after entry of judgment. A rehearing will only be sought if there is a material point of fact or law overlooked, change in the law after the case was submitted or a conflict with another decision of the Court was not addressed in the opinion.
I would anticipate changes to take place quickly at your local WCAB.