No. 87-365
IN THE SUPREME COURT OF THE STATE OF MONTANA
1988
JODY MC KINLEY,
Claimant and Respondent,
-VS-
AMERICAN DENTAL MANUFACTURING COMPANY,
Employer,
and
STATE COMPENSATION INSURANCE FUND,
Defendant and Appellant.
APPEAL FROM: Workers' Compensation Court of the State of Montana
In and For the Area of Missoula
The Honorable Timothy Reardon, Judge Presiding
COUNSEL OF RECORD:
For Appellant:
Oliver H. Goe; Browning, Kaleczyc, Berry & Hoven, P.C.
Helena, MT
For Respondent:
Julio K. Morales; Morales & Volinkaty, Missoula, MT
Submitted: March 4, 1988
Decided: May 17, 1988
Filed: MAY 1 7 1988
Clerk
Mr. Justice Fred J. Weber delivered the Opinion of t-he Court.
This is an appeal of the amount of attorney fees awarded
by the Workers' Compensation Court in Ms. McKinley's claim
for disability benefits. We reverse and remand to the work-
ers' Compensation Court.
Appellant State Compensation Insurance Fund (State Fund)
states the issue as whether the lower court erred in ignorinq
offers of settlement made prior to trial in determining the
attorney fee awardable under § 39-71-612, MCA (1983).
The claimant Ms. McKinley suffered an industrial acci-
dent to her right hand, arm, and shoulder in January 1984.
The State Fund paid temporary total disability benefits until
January 1986, when Ms. McKinley started to work for a new
employer. At that time, the State Fund terminated temporary
total disability benefits and began paying Ms. McKinley
permanent partial benefits.
The complaint before the Workers' Compensation Court was
filed because of a disagreement on the calculation of Ms.
McKinley's permanent partial disability benefits. Ms.
McKinley successfully argued that her benefits should be
calculated under S. 39-71-705, MCA. The court awarded her 500
weeks of permanent partial disability benefits at the rate of
$97.87 per week, or a total of $48,935. However, the court
noted that since Ms. McKinley's benefit rate is based on
actual lost earnings, the rate may change. The court ruled
that either Ms. McKinley or the State Fund may return once a
year to recompute the difference between current wages and
pre-injury wages. The court therefore denied Ms. McKinley's
request for attorney fees in a lump sum but ordered them paid
as Ms. McKinley receives her benefits.
The Workers' Compensation Court computed Ms. McKinley's
attorney fee based on the difference between the amount
awarded and $9,695, which it determined was the "floor offer"
by the State Fund. That determination is appealed.
Did the lower court err in ignoring offers of settlement
made prior to trial in determining the attorney fee awardable
under .§ 39-71-612, MCA?
Section 39-71-612, MCA (1983), governs the award of
attorney fees in this case. That statute provided, in rele-
vant part:
(1) If an employer or insurer pays or tenders
payment of compensation under chapter 71 or 72 of
this title, but controversy relates to the amount
of compensation due and the settlement or award is
greater than the amount paid or tendered by the
employer or insurer, a reasonable attorney's fee as
established by the division or the workers' compen-
sation judge if the case has gone to a hearing,
based solely upon the difference between the amount
settled for or awarded and the amount tendered or
paid, may be awarded in addition to the amount of
compensation.
As amended in 1985, the words "based solely upon the differ-
ence between the amount settled for or awarded and the amount
tendered or paid" are eliminated from the statute. However,
we must apply the statute as in effect on the date of injury.
Wight v. Hughes Livestock Co., Inc. (1983), 204 Mont. 98, 664
P.2d 303. Our key question is the amount of a reasonable
attorney fee when the amount of the fee is "based solely upon
the difference between the amount settled for or awarded and
the amount tendered or paid."
The correspondence between Ms. McKinley's attorney and
the State Fund prior to filing of the claim with the Worker's
Compensation Court can be summarized as follows:
On August 16, 1985, Ms. McKinley's attorney Mr.
Morales wrote to the State Fund, making a demand
for payment of benefits for permanent partial
disability totalling $57,400.
On January 29, 1986, the State Fund wrote to Mr.
Morales. The State Fund advised that because Ms.
McKinley had returned to work, payments would begin
at $113.07 per week under § 39-71-703, MCA, for the
diminution of wages. The Fund also mentioned an
impairment rating of 15% of the whole person and
asked that Mr. Morales contact his client and
advise whether she wanted benefits under § 703 or §
705. The Fund pointed out that benefits under S
705 would amount to $138.50 per week for not to
exceed 75 weeks.
On February 7, 1986, Mr. Morales wrote to the State
Fund. He objected to changing the benefits from
temporary total to permanent partial and made a
demand for temporary total benefits. Also, demand
was made for the payment of the minimum indemnity
benefit based on the 15% impairment rating -
$10,385.50 was recognized in the Fund letter. Mr.
Morales suggested an agreement that Ms. McKinley
was entitled to the maximum benefits of $138.50 for
500 weeks for a total of $69,250. He asked for
settlement on that amount.
On February 27, 1986, the State Fund replied to Mr.
Morales' letter of February 7 stating that it
interpreted the letter to mean that Ms. McKinley
would like to have benefits paid under § 705.
Therefore, 14 days from the date of the letter wage
loss benefits under 5 703 would be discontinued and
one month after that, under 5 709 the State Fund
would begin payment of "the undisputed liability
resulting from the impairment rating." (Note that
this in fact is what the Fund did in its April 28
letter.) The State Fund also advised that it did
not believe that Ms. McKinley was entitled to 500
weeks at $138.50 as its calculations showed that
even if she were to receive a 5% pay increase each
year for the past 2 years she would not qualify for
the $138.50. Finally, the Fund noted that Mr.
Morales originally had requested settlement for
$57,400. The State Fund rejected that offer for
lack of sufficient information and observed that
the demand had gone up $12,000.
On March 4, 1986, Mr. Morales wrote to the State
Fund. Mr. Morales outlined his theory of loss of
earning capacity at 75 weeks at $138.50 per week
plus 425 weeks at $137.33 or a total of $68,762.67.
He then indicated his client was willing to accept
the foregoing in full compensation of the permanent
partial disability benefits.
On March 21, 1986, the State Fund wrote to Mr.
Morales. This letter contained the words, "our
offer of settlement on this case is $36,927.80."
The next paragraph described how the client was
entitled to 70 weeks of partial benefits at $138.50
per week for a total of $9,695. The next paragraph
pointed out that the loss of hourly wages trans-
lates to $129.68 per week under § 703 so that for
the remaining 210 weeks, she would be entitled to
$27,232.80. These two figures together of course
total the offer of settlement of $36,927.80.
On April 28, 1986, the State Fund wrote to Mr.
Morales. In this letter, the State Fund mentioned
that Ms. McKinley was to receive benefits for 70
weeks at $138.50 per week payable biweekly from
April 1, 1986, which was the date of her first
entitlement to indemnity benefits under 705.
They also advised that 3 weeks had passed so she
was entitled to a $415.50 lump sum payment. In
addition the Fund stated that if Ms. McKinley
needed a lump sum payment of future benefits she
should contact the claims examiner.
The claim before the Workers' Compensation Court was filed on
March 27, 1986. Prior to the trial before the Workers'
Compensation Court, on August 27, 1986, the attorney for the
State Fund wrote a letter to Ms. McKinley's attorney offering
settlement in the amount of $40,940.
The lower court found that the first "offer" - the offer
that precipitated the dispute - was the January 1986 reduc-
tion of Ms. McKinley's benefits from a temporary total rate
to a permanent partial rate. However, it found that the
duration of benefits in this offer was unclear. It then
found that a $36,927.80 offer was extended in the March 21,
1986, letter but was withdrawn in the April 28, 1986 letter,
bringing the parties back to 70 weeks at $138.50, or $9,695.
The court determined that "a reasonable attorney fee in this
matter should be based on the difference between the amount
awarded and the first firm, specific and determinable offer
made by the defendant," that is, $9,695.
Factually we conclude that as of March 21, 1986, the
State Fund had made an offer of settlement in the amount of
$36,927.80 and there was a specific breakdown on a weekly
basis as to the computation of that amount. We disagree with
the lower court's conclusion that this offer was withdrawn in
the April 28 letter. In Holton v. F.H. Stoltze Land & Lumber
Co. (Mont. 1981), 637 P.2d 10, 38 St.Rep. 1835, this Court
held that an insurer has a duty to promptly pay any undisput-
ed compensation, refusal of which triggers penalties. In
this case, as of January 1986, the State Fund had acknowl-
edged liability for disability benefits under $ 39-71-705,
MCA, of $138.50 per week for not to exceed 75 weeks. We
conclude that the April 28, 1986, letter sets forth Ms.
McKinley's Holton benefits. There simply is no factual basis
for the conclusion that the March 21 offer was withdrawn.
The letter makes no mention of the March 21 offer of
$36,927.80, and we conclude that it does not constitute a
withdrawal of that offer.
The State Fund argues that the August 27, 1986, offer by
its attorney should be compared with the final offer to
determine attorney fees. It cites Lasar v. Oftedal & Sons
(Mont. 1986), 721 P.2d 352, 43 St.Rep. 1938. In that case,
this Court held that there were two conditions to an award of
attorney fees under $ 39-71-612, MCA (1983): the amount of
attorney fees must be in controversy, and the amount awarded
must exceed the amount paid or tendered. Lasar, 721 P.2d at
354. This Court refused to award attorney fees in that case
because three weeks prior to trial, the insurer had conceded
the total amount of compensation due. Thus the first re--
quirement for application of the statute was not met. In
contrast, the amount of compensation in the present case
remained in controversy through the trial.
Here, following the State Fund's offer of $36,927.80,
the petition was filed in the Workers' Compensation Court in
March 1986. In June, July, and August the parties engaged in
discovery including depositions and written interrogatories,
and hearing was set for September 2. The letter in which the
offer of $40,940 was made is dated August 27, 1986, one day
before the pretrial conference and less than a week before
the scheduled hearing date. The statute does not clarify
whether the "amount tendered or paid" could refer to this
late offer. We conclude, however, that use of the
eve-of-trial $40,940 figure would not result in a "reasonable
attorney fee" under the facts of this case. In this case, we
conclude that the "reasonable attorney fee" under
5 39-71-612, MCA (1983), is computed using the difference
between the amount awarded and the $36,927.80 offer made
preceding the filing of the petition.
Ms. McKinley's counsel has briefed the issues of whether
he was erroneously denied a lump sum award of his fees and
whether he is entitled to interest on his fees. However, he
has not raised- these issues properly by filing a
cross-appeal. Therefore we will not consider these issues,
and the lower court's ruling will stand that attorney fees
will be paid on a weekly basis as Ms. McKinley's benefits are
paid.
Ms. McKinley's counsel also points out that his fee
agreement with Ms. McKinley entitles him to an increase in
attorney fees because this case has been appealed. The fee
agreement provides that he will recei1.e 40% of compensation
payments if the case is appealed to this Court. Because it
was, the Workers' Compensation Court may increase his attor-
ney fee to be paid by the State Fund to 40% of the difference
between the amount awarded and the $36,927.80 tendered. We
remand this action to the Workers' Compensation Court for
entry of an order for attorney fees consistant with this
opinion.
We Concur: H
d
Chief Justice
Justices
Mr. Justice William E. Hunt, Sr., dissenting:
I concur with the majority's opinion that a lump-sum fee
should not be awarded in this case for the reason that
respondent did not raise this issue properly in a
cross-appeal.
I dissent, however, with the majority's disregard of the
Workers' Compensation Court's finding that the original offer
is $36,000 even though the Workers' Compensation judge found
it had been withdrawn and replaced by one for $9,000. It is
up to the fact finder to determine what offer or tender is to
be used under § 39-71-612, MCA. In this case the Workers'
Compensation Court found the "floor" to be the offer
contained in the March 28 letter. That offer was $9,000
finding of the "first, firm, specific and determinable offer"
seems to me to be a proper criteria of a floor. Where there
is a genuine offer, that is later withdrawn and replaced by a
lesser offer, attorney fees cannot be defeated when, through
the efforts of the attorney, the claimant recovers a greater
amount than claimant would have received without the help of
the attorney.
By its decision, the majority ignores that the purpose
of the Workers' Compensation Act is to provide for the worker
injured on the job who cannot provide for himself; it also
ignores that 39-71-104, MCA, which requires liberal
construction of these statutes by the courts, was still in
effect at the time of McKinley's injury and is still
applicable to this case.
/-
join the dissent of Mr. Justi
Justice