Stavenjord v. Montana State Fund

No. 04-737

IN THE SUPREME COURT OF THE STATE OF MONTANA

2006 MT 257

DEBRA STAVENJORD,

Petitioner and Appellant,

v.

MONTANA STATE FUND,

Respondent and Cross-Appellant.

APPEAL FROM: The Montana Workers’ Compensation Court,
WWC 2000-0207,
Honorable Mike McCarter, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

Thomas J. Murphy, Murphy Law Firm, Great Falls, Montana

For Respondent:

Bradley J. Luck, Thomas J. Harrington, Garlington, Lohn &
Robinson, PLLP, Missoula, Montana

David Hawkins, Montana State Fund, Helena, Montana

Heard on Oral Argument: October 26, 2005

Decided: October 6, 2006

Filed:

__________________________________________
Clerk
Justice Patricia O. Cotter delivered the Opinion of the Court.

¶1 Both parties appeal from an Order of the Workers’ Compensation Court (WCC)

related to common fund attorney fees and retroactive application of our ruling in

Stavenjord v. Montana State Fund, 2003 MT 67, 314 Mont. 466, 67 P.3d 229 (Stavenjord

I). In Stavenjord I, we affirmed the WCC’s determination that: (1) application of § 39-

72-405(2), MCA (1997), to Debra Stavenjord’s claim against Montana State Fund (State

Fund) violated her constitutional equal protection rights, and (2) Stavenjord should

receive benefits related to her occupational disease equal to benefits she would have

received had she been injured. On remand in the WCC, State Fund paid Stavenjord’s

additional benefits. Stavenjord then sought retroactive application of Stavenjord I, and

the recovery of common fund attorney fees for Stavenjord-type benefits secured by non-

participating claimants. The WCC ordered partial retroactive application of Stavenjord I,

and common fund attorney fees for claims arising within the period of retroactivity.

Stavenjord appeals. State Fund cross-appeals. We reverse and remand.

ISSUES

¶2 The restated issues on appeal and cross-appeal are:

1. Whether Stavenjord I applies retroactively to open claims arising on or after June 30,

1987.

2. Whether the WCC erroneously applied the date of maximum medical improvement as

the entitlement date for retroactivity purposes.

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3. Whether the WCC erroneously concluded that Stavenjord I created a common fund

entitling Stavenjord’s counsel to collect common fund fees from non-participating

claimants who benefit from the decision.

4. Whether the WCC erroneously concluded that Stavenjord’s counsel timely asserted a

claim for common fund attorney fees.

FACTUAL AND PROCEDURAL BACKGROUND

¶3 We first addressed Stavenjord’s case in Stavenjord I, and refer the reader to that

case for the factual background leading to this appeal. Additionally, the parties stipulated

to facts on which the WCC relied during Stavenjord I remand proceedings, and which we

reference below as necessary.

¶4 In Stavenjord I we held that certain provisions of the Occupational Disease Act

(ODA) violate the equal protection clause of the Montana Constitution because workers

who suffer from an occupational disease received lesser permanent partial disability

(PPD) benefits than workers who are injured on the job receive under the Workers’

Compensation Act (WCA). ¶ 48. We concluded that § 39-72-405(2), MCA (1997), was

unconstitutional as applied to Stavenjord. Stavenjord I, ¶ 48.

¶5 As a result of post-remand proceedings, the WCC determined that partial

retroactive application of Stavenjord I was appropriate, but only for claims arising on or

after June 3, 1999. Further, the WCC found that a common fund had been created by

Stavenjord I, and therefore Stavenjord’s counsel was entitled to common fund attorney

fees from non-participating PPD claimants benefiting from counsel’s work on

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Stavenjord’s behalf. On August 27, 2004, the WCC issued the Order from which the

parties appeal.

STANDARD OF REVIEW

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

Schmill v. Liberty Northwest Ins. Corp., 2005 MT 144, ¶ 11, 327 Mont. 293, ¶ 11, 114

P.3d 204, ¶ 11 (Schmill II).

DISCUSSION

ISSUE ONE

¶7 1. Whether Stavenjord I applies retroactively to open claims arising on or after
June 30, 1987.

¶8 Stavenjord contends the WCC erred when it restricted retroactive application of

our ruling in Stavenjord I to open claims arising on or after June 3, 1999, and that the

decision should apply to cases arising on or after June 30, 1987. State Fund responds that

Stavenjord I applies prospectively only. Alternatively, State Fund argues the WCC

correctly limited the scope of Stavenjord I’s retroactive application to cases arising on or

after June 3, 1999. In addition, regarding retroactive application of Stavenjord I, State

Fund urges this Court to limit application of the ruling to “cases pending on direct

review.” We therefore must decide whether Stavenjord I applies retroactively to

workers’ claims for PPD benefits related to occupational diseases, and if so, to what

extent.

¶9 There exists a strong presumption in favor of retroactive application of new rules

of law. Dempsey v. Allstate Ins. Co., 2004 MT 391, ¶ 15, 325 Mont. 207, ¶ 15, 104 P.3d

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483, ¶ 15. In Dempsey, we reaffirmed our general rule that “we give retroactive effect to

judicial decisions,” while allowing for “an exception to that rule when faced with a truly

compelling case for applying a new rule of law prospectively only.” Dempsey, ¶ 29

(citation omitted). Recently, we concluded that we would recognize an exception to

retroactive application of this Court’s rulings only when all three factors first articulated

by the U.S. Supreme Court in Chevron are met. Schmill II, ¶ 13, referencing Chevron Oil

Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349 (1971). In Dempsey, we said that Chevron’s

guidelines for evaluating the efficacy of prospective application of this Court’s

jurisprudence remain “viable as an exception to the rule of retroactivity.” Dempsey, ¶ 30.

(See Dempsey, ¶¶ 21-31 for a temporal overview of Chevron’s application in federal and

Montana state courts.)

¶10 To overcome the strong presumption favoring retroactivity, the Chevron exception

requires:

First, that the decision to be applied [prospectively] 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 “where 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 [prospective application].”

Schmill II, ¶ 13, citing Dempsey, ¶ 21, quoting Chevron, 404 U.S. at 106-07, 92 S.Ct. at

355. Only twice has application of Chevron and its progeny resulted in a purely

prospective application of this Court’s rulings on questions of state law. See Ereth v.

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Cascade County, 2003 MT 328, 318 Mont. 355, 81 P.3d 463, and Seubert v. Seubert,

2000 MT 241, 301 Mont. 382, 13 P.3d 365, both of which predated the exhaustive

analysis of the question of retroactivity published in Dempsey, and addressed again in

Schmill II. Moreover, prospective application in both cases rested on cursory analyses of

the Chevron factors. In any event, our decisions in Dempsey and Schmill II have now

resolved any uncertainty there might have been regarding proper application of the

Chevron factors in a retroactivity analysis.

¶11 Here, the WCC applied the Chevron factors and ultimately ordered partial

retroactive application of Stavenjord I to open claims arising on or after June 3, 1999, but

declined to order application of Stavenjord I to claims arising between June 30, 1987, and

June 3, 1999. At the time the WCC wrote its Order, it did not have the benefit of

Dempsey or Schmill II; accordingly, it relied instead upon patently misleading dicta from

Poppleton for the proposition that “The general rule is that a rule of law will not be

applied retroactively if any of the [Chevron] factors . . . are present.” Poppleton v.

Rollins, Inc., 226 Mont. 267, 271, 735 P.2d 286, 289 (1987) (emphasis and bracketed

material in WCC August 27, 2004 Order). 1 However, as we clarified in Dempsey and

Schmill II, it is now well-settled that a party arguing for purely prospective application of

this Court’s jurisprudence must show that all three factors of the Chevron test are met.

Dempsey, ¶ 31; Schmill II, ¶ 13.

1 This misstatement of the Chevron test from Poppleton was dicta, because we in fact determined
the Poppleton ruling applied retroactively.

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¶12 We turn now to the question of whether the Chevron exception applies here. First,

we must determine whether Stavenjord I established 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. Schmill II, ¶ 13;

Dempsey, ¶ 21.

¶13 Before Stavenjord I, this Court had not considered the constitutionality of

disparate PPD benefits awarded under the ODA as opposed to the WCA; thus, Stavenjord

I decided an issue of first impression. However, our ruling in Stavenjord I was clearly

foreshadowed by our decision in Henry v. State Compensation Ins. Fund, 1999 MT 126,

294 Mont. 449, 982 P.2d 456. In Henry, we held:

In sum, we can see no rational basis for treating workers who are injured
over one work shift differently from workers who are injured over two
work shifts. . . . We conclude that providing rehabilitation benefits to
workers covered by the WCA, but not to workers covered by the ODA, is
not rationally related to the legitimate governmental interest of returning
workers to work as soon as possible after they have suffered a work-related
injury. We hold that the ODA violates the equal protection clause of the
Montana Constitution to the extent that it fails to provide vocational
rehabilitation benefits. ¶¶ 44-45.

While the benefit at issue in Henry—rehabilitation benefits—differed from the PPD

benefits of concern in Stavenjord I, in all other respects related to our analysis of equal

protection for similarly situated workers, Henry and Stavenjord I parallel one another. In

both cases, State Fund argued the two classes of workers seeking benefits—specifically

(1) injured workers and (2) workers suffering from occupational disease—were not

similarly situated under the law. Henry, ¶ 28, and Stavenjord I, ¶ 12. In Henry, we said:

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 The State Fund misses the point. Regardless of the number of days or the
mechanism by which a worker incurs an affliction, the fact remains that
both classes of individuals have suffered work-related injuries, are unable
to perform their former jobs, and need rehabilitation benefits to return to
work. Both workers have as their sole source of redress the WCA or the
ODA. . . . We conclude that the classes are similarly situated for equal
protection purposes. ¶ 28.

The outcome of State Fund’s subsequent argument that Stavenjord, a worker who

suffered an occupational disease seeking redress under the ODA, was not similarly

situated to injured workers seeking redress under the WCA, was plainly presaged.

¶14 Therefore, we conclude that the issue of first impression decided in Stavenjord I

was, in the vernacular of Dempsey and Schmill II, “clearly foreshadowed.”

Consequently, the first of the three factors required to invoke Chevron’s exception to

presumed retroactivity is not met. On this determination alone we could conclude that

retroactive application of Stavenjord I is proper. Nonetheless, we note that analysis

under Chevron’s second requirement also favors retroactive application. As articulated

by the WCC, “Applying the decision retroactively promotes the rule of law announced in

the decision by assuring that all persons denied their constitutional rights are treated

equally.” Chevron 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.” Schmill II, ¶ 13 (citations

omitted). The purpose and effect of our ruling in Stavenjord I is clearly to provide equal

protection under the law to partially disabled workers, regardless of whether they suffer

an injury or from an occupational disease. Restricting Stavenjord I’s application to

claims arising after our decision in that case furthers neither the purpose nor the effect of

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our ruling. We see no justification for creating an “arbitrary distinction between litigants

based merely on the timing of their claims.” Dempsey, ¶ 28. Therefore, we conclude that

Chevron’s second factor is not met. Accordingly, our decision in Stavenjord I will be

applied retroactively subject to the limitations set forth below.

¶15 Next, we analyze whether the WCC’s decision to order “partial” retroactive

application of Stavenjord I was correct. We conclude it was not. There is no legal

authority for “partial” retroactive application of Stavenjord I. The Chevron exception

does not allow for “partial” retroactivity. Either Chevron’s factors are met—in which

case prospective application is justified—or they are not. It bears repeating that this

Court reserves the Chevron exception for “truly compelling” cases where retroactive

application of a new rule would obfuscate justice. Here, State Fund has not cleared

Chevron’s hurdle, and therefore Stavenjord I applies to any and all open claims arising

on or after June 30, 1987, the date on which the offending statute, § 39-72-405(2), MCA

(1997), took effect. For these purposes, “open claims” will encompass those which are

still actionable, in negotiation but not yet settled, now in litigation, or pending on direct

appeal.

¶16 Conversely, Stavenjord I does not apply to occupational disease-related PPD

claims that became final by way of settlement or judgment prior to the issuance of this

opinion. “New legal principles, even when applied retroactively, do not apply to cases

already closed.” Dempsey, ¶ 28, quoting Reynoldsville Casket Co. v. Hyde, 514 U.S. 749,

758, 115 S.Ct. 1745, 1751 (1995). In Dempsey, we weighed the interests of fairness

against the need for finality in retroactive application of new rules, noting that

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prospective application “creates an arbitrary distinction between litigants based merely on

the timing of their claims” and concluding that “the line should be drawn between claims

that are final and those that are not . . . .” ¶ 28. Therefore, we conclude that the WCC

erred in ordering only partial retroactive application of Stavenjord I to cases arising on or

after June 3, 1999. Rather, Stavenjord I shall apply retroactively to those claims arising

on or after June 30, 1987, which remain “open” as herein defined. Occupational disease-

related claims for PPD benefits previously finalized and closed by either court order, or

settlement and release, may not be reopened for consideration under Stavenjord I or this

Opinion.

ISSUE TWO

¶17 2. Whether the WCC erroneously applied the date of maximum medical
improvement as the entitlement date for retroactivity purposes.

¶18 In light of our disposition of Issue One, we need not address this issue.

ISSUE THREE

¶19 3. Whether the WCC erroneously concluded that Stavenjord I created a common
fund entitling Stavenjord’s counsel to collect common fund fees from non-participating
claimants benefiting from the decision.

¶20 On cross-appeal, State Fund argues the WCC erred in concluding that Stavenjord I

created a common fund. State Fund urges this Court to place judicial constraints on the

common fund doctrine in the interests of policies underlying the WCA. Further, State

Fund argues the common fund doctrine does not apply to every case in which a claimant

receives a favorable ruling from this Court which may impact other claims. Stavenjord

responds that application by the WCC of the common fund doctrine was correct, as the

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doctrine provides the best available method for delivering unpaid PPD benefits to non-

participating Stavenjord beneficiaries. Stavenjord further contends that she “easily” met

the elements necessary for creating a common fund, and therefore her counsel is entitled

to recover attorney fees from non-participating beneficiaries of the common fund in

accordance with the common fund doctrine.

¶21 Generally, Montana follows the American Rule which obligates each party to civil

actions to pay her own attorney fees unless statute, contract, or equity allows otherwise.

Mountain West Farm Bureau v. Hall, 2001 MT 314, ¶ 13, 308 Mont. 29, ¶ 13, 38 P.3d

825, ¶ 13. This Court recognizes the common fund doctrine as an equitable exception to

the American Rule. See Means v. Montana Power Co., 191 Mont. 395, 403, 625 P.2d 32,

37 (1981) (expressly adopting common fund doctrine in Montana). The common fund

doctrine is “rooted in the equitable concepts of quasi-contract, restitution and recapture of

unjust enrichment,” and aimed at properly compensating active litigants and their counsel

whose efforts result in correcting an injustice and creating a fund in which other non-

participating beneficiaries maintain an interest. Means, 191 Mont. at 403, 625 P.2d at 37.

¶22 Since the common fund doctrine’s creation and earliest applications in Trustees v.

Greenough, 105 U.S. 527 (1882), and Central Railroad & Banking Co. v. Pettus, 113

U.S. 116, 5 S.Ct. 387 (1885), the United State Supreme Court has recognized consistently

that a litigant or a lawyer who recovers a common fund for the benefit of other persons is

entitled to recovery of fees from the whole, therein preventing inequity by spreading fees

proportionately among those benefited by the litigation. Boeing Co. v. VanGemert, 444

U.S. 472, 478, 100 S.Ct. 745, 749 (1980). The Supreme Court has instructed that the

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common fund is applied appropriately where: (1) the classes of persons benefited by the

lawsuits are small in number and easily identifiable; (2) benefits can be traced with some

accuracy; and (3) the court has confidence the costs of litigation can indeed be shifted

with some exactitude to those benefiting. Boeing Co., 444 U.S. at 479, 100 S.Ct. at 749,

citing Alyeska Pipeline Serv. Co. v. Wilderness Society, 421 U.S. 240, 265, n. 39, 95 S.Ct.

1612, 1625, n. 39 (1975). Those characteristics which justify common fund fees are not

present where litigants simply vindicate a general social grievance. Alyeska Pipeline

Serv. Co., 421 U.S. at 263-65, and n. 39, 95 S.Ct. at 1624-26, and n. 39.

¶23 The motivating principle underlying this Court’s adoption of the common fund

doctrine was to prevent unjust enrichment of non-participating claimants at the expense

of active litigants and their counsel. Murer v. State Comp. Mut. Ins. Fund, 283 Mont.

210, 222, 942 P.2d 69, 76 (1997) (Murer III) (discussing rationale for adopting the

common fund doctrine in Means, 191 Mont. 395, 625 P.2d 32). “The doctrine is

employed to spread the cost of litigation among all beneficiaries so that the active

beneficiary is not forced to bear the burden alone and the ‘stranger’ . . . beneficiaries do

not receive their benefits at no cost to themselves.” Murer III, 283 Mont. at 222, 942

P.2d at 76, quoting Means, 191 Mont. at 403, 625 P.2d at 37.

¶24 This Court has reduced to three elements the common fund doctrine’s equitable

underpinnings:

There are three elements necessary to establish a common fund. First, a
party, styled the active beneficiary, must create, reserve, preserve, or
increase an identifiable monetary fund or benefit in which all active and
non-participating beneficiaries have an interest. Second, the active

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 beneficiary must incur legal fees in establishing the common fund. Third,
the common fund must benefit ascertainable, non-participating
beneficiaries.

Ruhd v. Liberty Northwest Ins. Corp., 2004 MT 236, ¶ 16, 322 Mont. 478, ¶ 16, 97 P.3d

561, ¶ 16, citing Mountain West Farm Bureau., ¶¶ 15-18. We recently analyzed these

elements and applied the common fund doctrine in several workers’ compensation cases.

See Murer III, 283 Mont. 210, 942 P.2d 69, Rausch v. State Compensation Ins. Fund,

2002 MT 203, 311 Mont. 210, 54 P.3d 25, Flynn v. State Compensation Ins. Fund, 2002

MT 279, 312 Mont. 410, 60 P.3d 397, and Ruhd, 2004 MT 236, 322 Mont. 478, 97 P.3d

561.

¶25 The elements for establishing a common fund are appropriately straightforward.

Application of the doctrine is, however, not warranted in every case that establishes a

new rule of law from which other claimants may derive a benefit. In Murer III, the

earliest of our recent common fund worker’ compensation cases, we emphasized that

claimants there accomplished “significantly more than just the establishment of a

favorable legal precedent. Additionally, claimants established a vested right on behalf of

the absent claimants to directly receive immediate monetary payments of past due

benefits underpayments; and based on the establishment of those vested rights, the State

Fund became legally obligated to make the increased benefits payments.” Murer III, 283

Mont. at 223, 942 P.2d at 76-77 (emphasis added). Similarly, in Rausch, the result of the

claimant’s efforts was the immediate payment of an undisputed impairment award, the

payment of which would have otherwise been delayed until the respective claimants

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reached retirement age. Thus, the dispute in Rausch centered not upon eligibility or

amount of the benefit, but rather on the timing of the payment. ¶ 10.

¶26 In Murer III, we concluded that the common fund doctrine properly applied due in

part to the certainty with which State Fund identified absent claimants and

mathematically calculated the increased benefits to which absent claimants were entitled.

(See Murer v. State Compensation Mut. Ins., 267 Mont. 516, 885 P.2d 428 (1994) (Murer

II) for the mandate underlying our discussion in Murer III regarding implementation of

the common fund). As a result of our Murer II decision, State Fund: (1) identified absent

claimants; (2) notified those claimants of their rights pursuant to Murer II; (3) calculated

with mathematical certainty the increased benefits due each absent claimant; and (4)

made payments to those claimants. Murer III, 283 Mont. at 223, 942 P.2d at 77

(emphasis added). State Fund was, “able to determine, with certainty, the number of

absent claimants involved and the amount of money to which each individual claimant

was entitled.” Murer III, 283 Mont. at 223, 942 P.2d at 77 (emphasis added). As we

noted in Rausch, at ¶ 48, quoting Murer III: “Those absent claimants will receive the

benefit ‘even though they were not required to intervene, file suit, risk expense, or hire an

attorney.’” Thus, absent application of the common fund doctrine, both the Murer and

Rausch beneficiaries would have reaped the benefits of protracted legal action at no

expense to themselves, a classic example of the unjust enrichment specifically targeted

by the common fund doctrine exception to the American Rule.

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¶27 Here, by contrast, benefits due to non-participating Stavenjord beneficiaries will

not be readily identifiable on superficial review of case files, nor can benefits due be

calculated with certainty by way of a mathematical formula. The result of this case will

not be that all eligible claimants will automatically be due a sum certain for unpaid PPD

benefits. Rather, the parties here stipulated that it may be necessary for claimants’ claim

files to be updated or augmented in order to determine what PPD benefits each claimant

is due under Stavenjord I. Thus, the “identifiable monetary fund or benefit” which the

first of the three elements of the common fund doctrine requires is absent here. See ¶ 24,

and Ruhd, ¶ 16. Moreover, because each claimant’s situation will be unique, there will

be no simple universal formula that can be applied to all non-participating claimants to

determine to what additional money they are entitled. It also bears noting that many of

these claimants are represented by counsel, and will require further assistance from their

attorneys. A common fund reduction in fees to benefit Stavenjord’s counsel would create

a disincentive for non-participating claimants’ counsel, and could thereby threaten a

claimant’s prospects for an aggressively negotiated benefit recovery.

¶28 We have previously said the common fund doctrine is applied properly where the

potential economic returns from individual claims are insufficient to warrant litigation,

and as a result wrongful acts go uncorrected. Application of the common fund doctrine is

“especially appropriate” where “individual damage from an institutional wrong may not

be sufficient from an economic viewpoint to justify the legal expense necessary to

challenge that wrong.” Murer III, 283 Mont. at 222-23, 942 P.2d at 76. Stavenjord’s

claim resulted in a $17,027.00 difference between the $10,000.00 in benefits to which she

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was entitled under the ODA, and the $27,027.00 in PPD benefits to which we concluded

she was entitled. Stavenjord I, ¶¶ 9-10. While we acknowledge that Stavenjord and her

counsel likely incurred significant expense in pursuing her case through the appeal

process, the fact is that eligible claimants do have the financial incentive to pursue

Stavenjord benefits, provided they and their counsel expend the time and effort required

to reap the benefit of our decision. Because more work remains to be done before most

claimants may successfully obtain their respective Stavenjord benefits, the concern with

unjust enrichment to non-participating beneficiaries that underlies the common fund

doctrine’s intended purpose is largely absent here. We therefore conclude that the WCC

erred in determining that Stavenjord I created a common fund. Thus, Stavenjord’s

counsel is not entitled to recover fees from cases brought by other claimants in pursuit of

Stavenjord-type PPD benefits.

ISSUE FOUR

¶29 4. Whether the WCC erroneously concluded that Stavenjord’s counsel timely
asserted a claim for common fund attorney fees.

¶30 We have already determined that Stavenjord I did not create a common fund. As a

result, we need not resolve this issue.

CONCLUSION

¶31 For the foregoing reasons, we conclude the District Court erred regarding both

partial retroactive application of Stavenjord I and creation of a common fund. We

remand this case to the WCC for further proceedings to include the determination of an

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appropriate procedure by which potential Stavenjord beneficiaries will be identified and

notified of their interests related to increased Stavenjord-type PPD benefits.

/S/ PATRICIA COTTER

We Concur:

/S/ KARLA M. GRAY
/S/ JAMES C. NELSON
/S/ W. WILLIAM LEAPHART
/S/ JOHN WARNER
/S/ JIM RICE
/S/ BRIAN MORRIS

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