No. 8 7 - 5 4 5
IN THE SUPR.EME COURT OF THE STATE OF MONTANA
1988
HOAGY CARMICHAEL,
Relator,
-vs-
THE WORKERS' COMPENSATION COURT OF
THE STATE OF MONTANA, THE HONORABLE
TIMOTHY REARDON, PRESIDING and ARC0
METALS, IFlC. ,
Respondents.
ORIGINAL PROCEEDING:
COUNSEL OF RECORD:
For Relator:
Bothe & Lauridsen; Laurie Wallace argued, Columbia
Falls, Montana
For Respondent :
p r r a y , Kaufman, Vidal & Gordon; James Ramlow argued,
*.alispell, Montana
c:
Submitted: September 1 , 1988
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CC;, *. Decided: November 1, 1988
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Filed: .-
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Clerk
Mr. Justice John Conway Harrison delivered the Opinion of the
Court.
Hoagy Carmichael petitioned this Court for a writ of
supervisory control challenging the 1987 amendments to the
Workers' Compensation Act concerning dispute resolution and
mediation, $ 5 39-71-2401 and -2406 through -2411, MCA. We
granted the writ for the purpose of determining whether these
statutes are constitutional as applied to cases where the
injury occurred before the effective date of the amendment,
but no petition was filed with the Workers' Compensation
Court until after that date. We find such a retroactive
application unconstitutionally impairs a contractual
obligation.
Hoagy Carmichael was injured on August 8, 1985, while
working in the course and scope of his employment with the
respondent, Arco Metals, Incorporated (Arco) . Arco is a
self insured employer and accepted Carmichael's compensation
claim. Arco commenced the payment of benefits, but
subsequently notified Carmichael in a letter dated July 24,
1987, that the benefits would be reduced from temporary total
disability to permanent partial disability. In response, on
August 3, 1987, Carmichael filed a petition for an emergency
hearing before the Workers' Compensation Court. In his
petition, Carmichael stated that due to his disability he was
unable to return to work and he had no means of support for
his family other than his workers' compensation benefits.
On September 15, 1987, Arco filed a motion to dismiss
Carmichael's claim based on § 39-71-2408, MCA, which requires
both parties to submit to nonbinding mediation regarding any
issue concerning benefits before either party may file a
petition in the Workers' Compensation Court. Section
39-71-2408, MCA, became effective July 1, 1987 and is part of
a group of statutes added to the Montana Workers'
Compensation Laws by the 1987 Montana Legislature providing
for mandatory nonbinding mediation. Sections 39-71-2401 and
-2406 through -2411, MCA. Carmichael resisted the motion
claiming the retroactive mandatory mediation deprived him of
procedural due process and the right to a speedy remedy for
his injury.
In an opinion filed November 20, 1987, the Workers'
Compensation Court determined the retroactive application of
the mandatory mediation process did not violate claimant's
constitutional rights. The court recognized the mediation
may result in some delay, but the delay was not so
substantial as to render the process unconstitutional. While
noting the mandatory mediation may cause some hardship, the
court also rejected Carmichael's due process argument.
However, the court did review the Administrative Rules which
elaborate on the implementation of the mandatory mediation,
allowing a maximum of 100 days to complete the mediation
process, and concluded this maximum time period must not
exceed 49 days. The court adopted the 49-day time period
based on S 39-71-610, MCA, permitting the Division upon
petition and at the Division's discretion, to extend benefits
for 49 days after the termination of benefits. By making
this modification, the court hoped to relieve some of the
potential hardship caused by delays during mediation. The
court granted the defendant's motion to dismiss and ordered
the mediation process be completed within 49 days.
On December 16, 1987, Carmichael filed an application
for a writ of supervisory control. On February 8, 1988, this
Court granted the writ and decided to hear the following
issue:
Whether the 1987 amendments to the Workers'
Compensation Act concerning dispute resolution and mediation,
5s 39-71-2401 and -2406 through -2411, MCA, apply, and if so,
are constitutional as applied, to cases in which the injury
occurred before July 1, 1987, but no petition was filed with
the Workers1 Compensation Court until after that date.
Both parties hold the position that the mediation
statutes, as written, apply to the facts of this case. The
relator, Carmichael, chose to divide the remaining
constitutional issue into four sub-issues:
Do the mandatory, nonbinding mediation requirements of
§ 39-71-2401 et seq., MCA, unconstitutionally:
1. impair the obligation of contracts as between
Workers1 Compensation insurers and those injured workers
receiving benefits prior to July 1, 1987;
2. violate the due process clause of the Federal and
State Constitutions as applied to termination-of-benefits
disputes ;
3. deprive Workers1 Compensation claimants of the
remedy to petition the Workers1 Compensation Court for a
49-day extension of benefits when those benefits are
disputed;
4. deny Workers1 Compensation claimants of a speedy
remedy for an injury to a vested property right?
Because we determine the nonbinding mediation
requirements unconstitutionally impair a contractual
obligation when applied to the facts of this case, we need
not go beyond an analysis of the first issue.
Generally, Carmichael's argument is based on the fact
that his injury occurred prior to the time the legislature
enacted the nonbinding mediation requirements. The enactment
applies to all injured workers regardless of the date of
injury. 1987 Mont. Laws 464, Section 72. Carmichael argues
the retroactive change results in a significant procedural
delay substantially impairing his contractual rights.
"This Court has assumed for a number of years that the
Workers' Compensation statutes in effect on the date of
injury set the contractual rights between the parties."
Buckman v. Montana Deaconess Hosp. (Mont. 1986), 730 P.2d.
380, 384, 43 St.R.ep. 2216, 2222 (citing Trusty v.
Consolidated Freightways (Mont. 1984), 681 P.2d 1085, 1087,
41 St-.Rep. 973, 975). Both the United States and Montana
Constitutions prohibit state laws impairing the obligation of
a contract. Art I, Sec. 10, U.S.Const; and Art. 11, Sec. 31,
Mont.Const. Carmichael recognizes this prohibition is not
absolute, but contends there has been a substantial
impairment of a contractual right within the meaning of the
United States and Montana Constitutions under the facts of
this case. Carmichael argues that following his injury and
after his benefits began, he obtained a vested contractual
and property right. After this right vested and prior to
July 1, 1987, he had the right to directly petition the
Workers' Compensation Court if his benefits ceased. The
mandatory mediation statutes retroactively altered this right
to directly petition the Workers' Compensation Court.
Carmichael concludes since the mediation may result in a
substantial delay causing him a significant hardship, the new
mediation procedure is a substantial impairment of his vested
contractual right.
Arco agrees that Carmichael has a contractual right
which vested at the time of his injury and that his benefits
cannot be subsequently altered by legislation. E.g. f
Buckman, 730 P.2d at 384-85, 43 St.Rep. at 2222. However,
Arco states Carmichael is confusing his contractual right to
workers' compensation benefits with an alleged right to
uninterrupted payments in all circumstances. Arco argues the
legislature has implemented a procedural change to encourage
settlements and reduce the caseload of the Workers'
Compensation Court. Arco concludes this is merely a
modification of the system for determining the eligibility
for benefits, and in no way alters the benefits to which
Carmichael may or may not be entitled.
In analyzing a contract clause challenge, this Court
has often implemented a three-tiered analysis set forth by
the United States Supreme Court in Energy Reserves Group,
Jnc. 17. Kansas Power and TJight Co. 11983), 459 1J.S. 400, 103
S.Ct. 697, 74 L.Ed.2d 569: (1) Is the state law a
substantial impairment to the contractual relationship? (2)
Does the state have a significant and legitimate purpose for
the law? (3) Does the law impose reasonable conditions which
are reasonably related to achieving the legitimate and public
purpose? See, Neel v. First Federal Sav. and Loan Assoc.
(1984), 207 Mont. 376, 392, 675 P.2d 96, 104-105. See also,
Buckman, 730 P.2d at 385, 43 St.Rep. at 2007. Although this
Court clearly recognizes that our state constitution provides
rights and protections separate from those afforded by the
federal constitution, " [wle have generally interpreted the
contract clauses found in Art. 11, S 31, 1972 Mont. Const.
and Art. I, S 10 (I), United States Constitution as
interchangeable guarantees against legislation impairing the
obligation of contracts." Buckman, 730 P.2d at 384, 43
St.Rep. at 2221, (citing Neel, 675 P.2d at 103, 41 St.Rep. at
25). In analyzing this issue, we will implement the
three-tiered analysis stated above.
The initial inquiry therefore, is whether the mandatory
mediation statutes operate as a substantial impairment of the
contractual relationship between workers' compensation
insurers and workers injured prior to July 1, 1987. If the
answer is no, there need be no further inquiry. "Total
destruction of contractual expectations is not necessary, and
a law which restricts a party to gains reasonably expected
from a contract is not a substantial impairment." Neel, 207
Mont. at 392, 675 P.2d at 105. Prior to the passage of the
mediation statutes, an injured worker had the right to
directly petition the Workers' Compensation Court to resolve
disputes concerning benefits under the Workers' Compensation
Act. Section 39-71-2905, MCA, (1985) . As previously noted,
the mandatory nonbinding mediation process must now be
satisfied prior to filing such a petition. Section
39-71-2908, MCA, (1987). In the opinion filed by the
Workers' Compensation Court, it was noted that the mediation
may result in a delay of 100 days. With the exception of his
workers' compensation benefits, the record indicates
Carmichael is without financial resources to support his
family. The delay presented by the current mediation
statutes is an additional delay not existing on the date
Carmichael was injured, which was the date his contractual
rights vested. Buckman, 730 P.2d at 384, 43 St.Rep. at 2222.
We find the delay caused by the mandatory mediation statutes
represents a substantial impairment of those contractual
rights.
Next, we must ask whether the state has a legitimate
and significant purpose for the law. The qeneral purpose of
the new mediation statutes is to encourage out of court
settlements and thereby lessen the volume of cases filed in
the Workers' Compensation Court. Section 39-71-2406, MCA.
This appears to represent a legitimate state purpose.
The final step of the analysis is whether the law
imposes reasonable conditions reasonably related to achieving
the legitimate purpose stated above. As was noted in Neel,
"unless the State is a party to the contract, courts will
properly defer to legislative judgment on this step." 207
Mont. at 392, 675 P.2d at 105. Since the Workers1
Compensation Court is a named respondent, we consider the
state a party to this action and will consider this third
question.
The record indicates insufficient evidence to
demonstrate the mandatory nonbinding mediation presents
conditions reasonably related to achieving the stated purpose
as applied to those workers injured before the effective date
of the statutes. Certain vague statistical evidence was
presented tending to show the mediation procedures were
encouraging settlement, but the statistics fail to give any
clear answers. Certainly there is insufficient evidence to
demonstrate the mediation process will achieve a more
manageable caseload for the Workers' Compensation Court when
applied to claimants injured prior to July 1, 1987; those
claimants whose contractual rights to benefits vested on the
date of injury.
Carmichael demonstrates a substantial impairment of his
contractual rights and there is insufficient evidence to
demonstrate the mediation statutes achieve their purpose as
applied to claimants injured prior to the effective date of
the statute. We hold the retroactive application of the
mandatory nonbinding mediation statutes unconstitutionally
impairs a contractual obligation. Accordingly, Carmichael
may directly petition the Workers' Compensation Court.
For the foregoing reasons, we reverse the decision of
the Workers' Compensation Court and remand for further
consideration consistent with this opinion.
We concur:
Chief Justice
Justices
Mr. Justice Fred J. Weber dissents as follows:
Statutes have a strong presumption of constitutionality.
The burden is upon the party attacking the statute to prove
unconstitutionality, and it is the duty of the court to
resolve all doubts in favor of validity whenever possible.
Reeves v. Ille Electric Co. (1976), 170 Mont. 104, 109, 551
P.2d 647, 650. With this rule in mind, I dissent from the
majority's conclusion that the mediation requirement of
§§ 39-71-2401 and -2406 through -2411, MCA, unconstitutional-
ly impairs contractual obligations as it is retroactively
applied to Mr. Carmichael. I further conclude that Mr.
Carmichael has not shown the requirement to be unconstitu-
tional by the other arguments he raised.
In the order appealed from, the Workers1 Compensation
Court ruled that the mediation requirement is constitutional
as applied to Mr. Carmichael and others whose benefits have
been paid and then terminated. The court further ruled that
in such cases the mediation process must be completed within
49 days after the request for mediation. It also provided
that such claimants would have the option of seeking an
interim order from the Division of Workers1 Compensation
under S 39-71-610, MCA. That section allows disputed bene-
fits to be reinstated for up to 49 days.
The majority uses the three-tier test set forth in
Energy Reserves in concluding that application of the media-
tion requirement in this case unconstitutionally impairs a
contractual obligation. That test requires that if a state
law substantially impairs a contractual right, the state must
show a significant and legitimate purpose which the law
imposes reasonable conditions toward achieving. The majority
initially concludes that the delay caused by the mandatory
mediation statutes represents a substantial impairment of
contractual rights.
In my opinion, there has been no showing that the media-
tion requirement substantially impairs any contractual right.
The requirement does not affect Mr. Carmichael's right to
workers1 compensation payments; it only presents the possi--
bility of a delay in his receiving compensation, provided
that he shows he is entitled to it. Even under the previous
statute, workers had no vested right to uninterrupted compen-
sation payments between the time the employer terminated them
for ineligibility and the ruling by the Workers' Compensation
Court. Because he raised this matter on supervisory control.
before proceeding through mediation, Mr. Carmichael has made
no showing that he is entitled to reinstatement of his bene-
fits. Second, Mr. Carmichael has made no showing of an
actual delay in his case. We don't know whether or not the
use of the mediation plus the court process might have re-
sulted in a shorter period of time in the present case. I
therefore disagree with the theory set forth in the majority
opinion that the delay presented by mediation is an "addi.-
tional delay" not existing on the date Mr. Carmichael was
injured. Third, this Court has recognized that in heavily
regulated industries, which description fits the area of
workers1 compensation law, it is inappropriate to assume that
procedural regulations will remain static. Nee1 v. First
Federal Sav. and Loan Assoc. (1984), 207 Mont. 376, 392-93,
675 P.2d 96, 105.
As a result of my conclusion that there has been no
substantial impairment of any contractual right of Mr.
Carmichaells, I would not need to proceed to the other 2
tiers of the Energy Reserves test. However, because the
majority concludes that there was an impairment of a contrac-
tual right, I will briefly discuss the remaining 2 tiers. I
agree with the majority conclusion that the second tier is
met because encouraging out of court settlements and thereby
lessening the volume of cases filed in the Workers' Compensa-
tion Court is a legitimate and significant purpose.
The final tier is whether the law imposes reasonable
conditions toward achieving its purpose. I conclude that a
mediation process is an appropriate means to address the
Legislature's purpose. The hearing examiner for the Workers'
Compensation Court submitted an affidavit to this Court which
compared case filings before and after the mediation require-
ment was adopted and showed dispositions of cases mediated in
the first 1 0 months. The affidavit showed that in the 10
months in which the mediation requirement had been in effect,
filings of petitions in the court were reduced from over 9 0 0
to 1 6 7 . The affidavit also showed that 3 0 0 mediations had
been completed during that period, 1 5 9 of which were resolved
by mediation. We have substantial evidence that the Legisla-
ture's chosen means is working satisfactorily for a large
number of claimants. I would therefore conclude that the
mediation requirement meets the three-tier test set forth in
Energy Reserves.
Because it found the contracts clauses of the U.S. and
the Montana Constitutions were violated by application of the
mediation requirement in Mr. Carmichael's case, the majority
did not consider the three other arguments against the new
statutes. I will address them briefly.
Mr. Carmichael argues that the mediation requirement
violates his due process rights. He has not cited any au-
thority that a delay in re-establishing a right which has
been unchallengedly taken away is a deprivation of due pro-
cess. Further, under the former statutes, there was no right
to a decision by the Workers' Compensation Court within any
particular time. The 60-day hearing rule is a procedural
rule of the Workers' Compensation Court, not a right estab-
lished by statute. I conclude that there is no due process
problem because there was no right to a continuation of
benefits between termination by the employer and a decision
by the Workers' Compensation Court.
Mr. Carmichael argues that the mediation requirement
deprives him of his remedy of 49 days of payment of disputed
benefits, as provided by 5 39-71-610, MCA. However, payment
of these benefits remains, as it has always been, a discre-
tionary matter with the division once a petition for hearing
on termination of benefits has been filed. Mr. Carmichael
has not been deprived of the opportunity to request disputed
benefits.
Lastly, Mr. Carmichael argues that the mediation re-
quirement deprives him of a speedy remedy for injury to a
vested property right in his benefits. We do not have proof
properly before us that the delay caused by the mediation
requirement exceeds the delay caused by the previous backloa
of cases before the Workers' Compensation Court. This Court
has recognized, in Linder v. Smith (Mont. 1981), 629 P.2d
1187, 38 St.Rep. 912, that reasonable requirements of first,
seeking administrative resolution may be placed upon persons
without depriving them of their right to access to the
courts.
I would therefore affirm the ruling of the Workers'
Compensation Court that the mediation requirement of the 1987
amendments to the workers' compensation laws is constitution-
al as applied in Mr. Carmichael's case and as limited by the
Workers' Compensation Court's order.
Chief Justice J.A. Turnage and Justice L.C. Gulbrandson
concur in the foregolnq dissent.