Schmill v. Liberty Northwest Ins. Corp.

No. 04-523

IN THE SUPREME COURT OF THE STATE OF MONTANA

2005 MT 144

CASSANDRA M. SCHMILL,

Petitioner, Respondent and Cross-Appellant,

v.

LIBERTY NORTHWEST INSURANCE CORPORATION,

Respondent, Insurer, and Appellant,

and

MONTANA STATE FUND,

Intervenor and Appellant.

APPEAL FROM: The Workers’ Compensation Court,
Honorable Mike McCarter, Judge

COUNSEL OF RECORD:

For Appellants:

Larry W. Jones, Jones and Garber, Missoula, Montana (Liberty)

Bradley Luck and Thomas Harrington, Garlington, Lohn & Robinson,
Missoula, Montana (State Fund)

For Respondent:

Laurie Wallace, Bothe & Lauridsen, Columbia Falls, Montana

Submitted on Briefs: April 20, 2005

Decided: June 7, 2005
Filed:

__________________________________________
Clerk
Justice W. William Leaphart delivered the Opinion of the Court.

¶1 Liberty Northwest Insurance Corp. (Liberty) and Montana State Fund (State Fund)

appeal from the judgment of the Workers’ Compensation Court (WCC). Cassandra Schmill

cross-appeals from the same judgment. We affirm in part and reverse in part.

¶2 We address the following issues on appeal:

¶3 1. Whether the rule announced in Schmill I applies retroactively.

¶4 2. Whether Schmill’s attorneys are precluded from requesting common fund fees

because they did not request them in their initial petition.

¶5 3. Whether Schmill I created a common fund.

¶6 4. Whether the common fund established by Schmill I created a global lien in all

resulting benefits.

FACTUAL AND PROCEDURAL BACKGROUND

¶7 This is the second time we have seen this litigation. In Schmill v. Liberty Northwest

Ins. Corp., 2003 MT 80, 315 Mont. 51, 67 P.3d 290 (Schmill I), we held that it was a

violation of the equal protection clauses of the Montana and United States Constitutions to

allow for apportionment deductions for nonoccupational factors in the Occupational Disease

Act (ODA), but not in the Workers’ Compensation Act (WCA). Schmill I, ¶ 23. Therefore,

we concluded that the ODA’s apportionment provision, § 39-72-706, MCA, was

unconstitutional. Schmill I, ¶ 23. The factual background to this litigation is set out in our

opinion in Schmill I.

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¶8 On remand, the WCC addressed two primary questions: whether the rule we

announced in Schmill I applies retroactively, and whether Schmill I created a common fund.

The court answered both in the affirmative. Pursuant to the latter question, the court also

concluded that petitioner Schmill’s attorneys were entitled to common fund attorney fees,

and that the common fund attorney fees were limited to claims handled by Liberty and thus

did not create a global lien. The Appellants argue that the rule in Schmill I does not apply

retroactively, that Schmill’s attorneys failed to plead for common fund fees, and that

Schmill I did not create a common fund. Schmill cross-appeals the court’s conclusion that

Schmill I did not create a global lien.

¶9 After the close of briefing in this appeal we announced Dempsey v. Allstate Insurance

Co., 2004 MT 391, 325 Mont. 207, 104 P.3d 483. Dempsey clarified this State’s rule on the

retroactivity of judicial decisions and restricted the circumstances in which a decision may

be applied prospectively only. Dempsey, ¶¶ 29-30. Because of this change in our

retroactivity jurisprudence, we invited the parties to submit supplemental briefing on the

question of how Dempsey applies to this case.

¶10 The parties stipulated to a set of facts in their arguments before the WCC. We cite

these facts below where appropriate.

STANDARD OF REVIEW

¶11 We review the WCC’s conclusions of law to determine whether they are correct. Van

Vleet v. Montana Ass’n of Counties Workers’ Comp. Trust, 2004 MT 367, ¶ 9, 324 Mont.

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517, ¶ 9, 103 P.3d 544, ¶ 9. We review the WCC’s findings of fact to determine whether

they are supported by substantial credible evidence. Van Vleet, ¶ 9.

DISCUSSION

ISSUE ONE

¶12 Whether the rule announced in Schmill I applies retroactively.

¶13 In Dempsey we concluded that the opinions of this Court regarding questions of state

law are presumptively retroactive. We allowed for an exception to this presumption when

an opinion satisfies all three of the Chevron factors. Dempsey, ¶ 31. This conclusion was

consistent with our prior holdings, although admittedly not consistent with some of our prior

dicta. See Dempsey, ¶ 30 (recognizing dicta from Poppleton v. Rollins (1987), 226 Mont.

267, 271, 735 P.2d 286, 289, indicating that only one of the Chevron factors must be

satisfied). The Chevron factors originate from Chevron Oil Co. v. Huson (1971), 404 U.S.

97, 92 S.Ct. 349, 30 L.Ed.2d 296, and are as follows:

“First, the decision to be applied nonretroactively must establish a new
principle of law, either by overruling clear past precedent on which litigants
may have relied or by deciding an issue of first impression whose resolution
was not clearly foreshadowed. Second, it has been stressed that ‘we must . . .
weigh the merits and demerits in each case by looking to the prior history of
the rule in question, its purpose and effect, and whether retrospective operation
will further or retard its operation.’ Finally, we have weighed the inequity
imposed by retroactive application, for ‘[w]here a decision of this Court could
produce substantial inequitable results if applied retroactively, there is ample
basis in our cases for avoiding the “injustice or hardship” by a holding of
nonretroactivity.’”

Dempsey, ¶ 21 (quoting Chevron, 404 U.S. at 106-07, 92 S.Ct. at 355, 30 L.Ed.2d at 306

(citations omitted)). Even before our decision in Dempsey, rarely did we conclude that an

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opinion should be applied prospectively only because it satisfied all three Chevron factors.

See Dempsey, ¶ 30 (noting that only in two relevant instances have we concluded that all

three factors were satisfied).

¶14 Liberty and the State Fund argue that Schmill I satisfies all three factors and that it

therefore should be applied prospectively only. The WCC, ruling before our issuance of

Dempsey, concluded that Schmill I satisfied none of the factors. As discussed below, we

conclude that Schmill I does not meet the second factor. Because this conclusion is

dispositive, we do not decide whether the decision meets the first and third factors. See

Dempsey, ¶ 33 (declining to address the second and third factors because the decision in

question failed factor one). However, we also note below that the State Fund’s arguments

for why Schmill I meets the third factor are very likely inapposite given the rule of finality

that Dempsey also established.

¶15 The second Chevron factor, again, requires us to “‘“weigh the merits and demerits in

each case by looking to the prior history of the rule in question, its purpose and effect, and

whether retrospective operation will further or retard its operation.”’” Dempsey, ¶ 21

(quoting Chevron, 404 U.S. at 106-07, 92 S.Ct. at 355, 30 L.Ed.2d at 306 (citations

omitted)). This Court has boiled this language down to simply asking whether the retroactive

application of a rule of law will further or retard its operation. See Benson v. Heritage Inn,

Inc., 1998 MT 330, ¶ 25, 292 Mont. 268, ¶ 25, 971 P.2d 1227, ¶ 25; Riley v. Warm Springs

State Hosp. (1987), 229 Mont. 518, 521, 748 P.2d 455, 457; LaRoque v. State (1978), 178

Mont. 315, 320, 583 P.2d 1059, 1062.

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¶16 The rule of Schmill I in question here is that, under an equal protection analysis, the

ODA cannot allow for apportionment deductions for nonoccupational factors if the WCA

does not allow for such deductions. A retroactive application of this rule will allow for

workers whose occupational diseases arose before our decision in Schmill I to receive full

workers’ compensation awards. It will place them on an equal footing with workers whose

occupational diseases arise after Schmill I, thus furthering the rule’s aim of equal

compensation between the ODA and WCA claimants. Further, a retroactive application will

not retard the rule’s operation. Future claimants will not find it more difficult to receive non-

apportioned awards if Schmill I applies retroactively. We conclude that since Schmill I does

not satisfy the second Chevron factor, the decision applies retroactively.

¶17 Liberty and the State Fund, in briefing, devoted a considerable time to addressing the

third Chevron factor. That factor requires us to weigh “‘the inequity imposed by retroactive

application . . . .’” Dempsey, ¶ 21 (quoting Chevron, 404 U.S. at 107, 92 S.Ct. at 355, 30

L.Ed.2d at 306). Although, in this case, this weighing does not affect the issue of

retroactivity (because of our conclusion regarding the second factor), we comment on the

State Fund’s treatment of the third factor because it appears that the State Fund, as well as

Liberty and Schmill, may not have grasped the full impact of Dempsey. Although Dempsey

emphasized a presumption of retroactivity, it also stated that retroactive application does not

mean that prior contrary rulings and settlements are void ab initio. Dempsey, ¶ 31. Rather,

due to reasons of finality, “[T]he retroactive effect of a decision . . . does not apply to cases

that became final or were settled prior to a decision’s issuance.” Thus, if an occupational

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disease claim was settled or became final prior to our ruling in Schmill I then Schmill I does

not affect whatever apportionment might have been deducted from the claim’s award.

¶18 Although the State Fund’s argument recognizes the rejection of the void ab initio rule,

the State Fund nonetheless raises the specter of the inequities that would result from a

retroactive application of Schmill I. Drawing from the stipulated facts, the State Fund argues

that a retroactive application would affect as many as 3,543 claim files dating back to July

1, 1987, and would force the State Fund to review each of those files. This would take many

hours of labor, especially because many of the claims are closed and inactive and lack the

claimants’ current addresses. In addition, the State Fund estimated that the cost of a

retroactive application would total as much as $2.8 million in additional benefits for claims

arising between July 1, 1987, and the date of Schmill I.

¶19 As the State Fund admits, many of these claims are settled, closed, or inactive. From

the record before us, it cannot be determined how many of the 3,543 claims would, in the

context of workers’ compensation law, be considered “final or settled” under our holding in

Schmill I. We leave that initial determination to the WCC.

ISSUE TWO

¶20 Whether Schmill’s attorneys are precluded from requesting common fund fees

because they did not request them in their initial pleadings.

¶21 Before we move on to the issue of whether Schmill I created a common fund, we must

decide whether Schmill’s attorneys properly requested common fund attorney fees. At the

beginning of this entire proceeding, Schmill’s attorneys did not plead for common fund

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attorney fees. Instead, her attorneys merely pled for statutory attorney fees. It was only after

our decision in Schmill I that Schmill’s attorneys prayed for common fund attorney fees.

Liberty and the State Fund argue that the WCC erred in awarding common fund attorney fees

because it does not have jurisdiction to do so. In addition, Liberty and the State Fund

contend that Schmill’s attorneys’ failure to plead common fund attorney fees in their initial

petition estops them from seeking such fees on remand and violates due process.

¶22 On the jurisdiction issue, Liberty asserts that the WCC can only award “penalties and

assessments allowed against an insurer under chapter 71 . . . .” Section 39-71-2905, MCA.

Since common fund attorney fees are not included in Chapter 71, continues Liberty, the

WCC cannot award them. However, the WCC itself correctly noted that common fund

attorney fees are not assessed against an insurer but against claimants. See Schmill v. Liberty

Nw. Ins. Corp., 2004 MTWCC 47, ¶ 7 (citing Murer v. State Comp. Mut. Ins. Fund (1997),

283 Mont. 210, 222-23, 942 P.2d 69, 76-77). We have previously stated that § 39-71-2905,

MCA, grants the WCC broad jurisdictional powers including the “payment of attorney’s fees

and related costs.” Kelleher Law Office v. State Comp. Ins. Fund (1984), 213 Mont. 412,

415, 691 P.2d 823, 825. Therefore, we conclude that the WCC had jurisdiction to award

common fund attorney fees.

¶23 As for the contentions of Liberty and the State Fund that Schmill’s attorneys should

have pled for common fund attorney fees in their initial petition, they ignore the fact that a

common fund does not arise until after the initial round of litigation. The timing is similar

to that in Kunst v. Pass, 1998 MT 71, ¶ 38, 288 Mont. 264, ¶ 38, 957 P.2d 1, ¶ 38. In Kunst,

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the relevant statute allowed for an award of attorney fees to a “‘prevailing party.’” Kunst, ¶

38 (quoting § 70-24-442(2), MCA). The prevailing plaintiffs did not request attorney fees

until after the trial court granted them a directed verdict. We held that because the plaintiffs

did not become a “prevailing party” until after the directed verdict “[i]t was thus entirely

proper and necessary for Plaintiffs to wait until after the court had granted them a directed

verdict to file a motion for attorney’s fees.” Kunst, ¶ 38. In this case, the common fund did

not arise until after we issued Schmill I. Therefore, it was proper for Schmill’s attorneys to

wait until post-remand proceedings to request common fund attorney fees. Furthermore,

again, because the common fund did not arise until after we issued Schmill I, Schmill’s

attorneys are not now estopped from requesting common fund attorney fees and there is no

due process violation. Since Schmill’s attorneys properly requested common fund attorney

fees, we can reach the issue of whether Schmill I created a common fund.

ISSUE THREE

¶24 Whether Schmill I created a common fund.

¶25 After an in-depth analysis of the issue, the WCC concluded that Schmill I created a

common fund. The State Fund does not challenge this conclusion. Liberty does challenge

the conclusion, but only on the assumption that Schmill I does not apply retroactively.

Liberty goes so far as to say that if Schmill I does apply retroactively then the decision did

create a common fund. Since we have determined that the WCC was correct in concluding

that Schmill I does apply retroactively, there is no challenge to the court’s further conclusion

that Schmill I created a common fund. Therefore, we do not disturb the court’s conclusion

on this issue.

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 ISSUE FOUR

¶26 Whether the common fund established by Schmill I created a global lien in all

resulting benefits.

¶27 Schmill cross-appeals the WCC’s conclusion that the common fund created in Schmill

I did not apply a global lien, but only a lien on claimants whose benefits are paid by Liberty.

The WCC stated that “[i]n Ruhd v. Liberty Northwest Ins. Corp., 2003 MTWCC 38, I held

that the common fund doctrine extends only to the claimants whose benefits are paid by the

respondent insurer. I rejected the claim that the petitioner’s attorney is entitled to a fee from

all the claimants who may benefit from the precedent irrespective of the insurer liable for the

benefits. While my decision in Ruhd has been appealed to the Supreme Court, I find no

reason to reconsider or deviate from my decision.” Schmill v. Liberty Nw. Ins. Corp., 2004

MTWCC 47, ¶ 54. Subsequent to the appeal in the instant case, we reversed the WCC’s

decision in Ruhd, concluding that the common fund created in that case “includes fees culled

from all claimants regardless of insurer.” Ruhd v. Liberty Nw. Ins. Corp., 2004 MT 236,

¶ 25, 322 Mont. 478, ¶ 25, 97 P.3d 561, ¶ 25. Pursuant to the reasoning of Ruhd we likewise

reverse the WCC on this issue, holding that the common fund created in Schmill I applied

a global lien against all claimants who may benefit from the decision, not just those whose

benefits are paid by Liberty.

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 CONCLUSION

¶28 We conclude that our decision in Schmill I is retroactive to all cases not yet final or

settled at the time of its issuance. Schmill’s attorneys properly requested common fund

attorney fees and the common fund created in Schmill I results in a global lien.

/S/ W. WILLIAM LEAPHART

We Concur:

/S/ KARLA M. GRAY
/S/ JAMES C. NELSON
/S/ PATRICIA O. COTTER
/S/ JOHN WARNER
/S/ JIM RICE
/S/ BRIAN MORRIS

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