NO. 01-475
IN THE SUPREME COURT OF THE STATE OF MONTANA
2002 MT 279
ROBERT FLYNN,
Petitioner and Appellant,
v.
STATE COMPENSATION INSURANCE FUND,
RespondentIInsurer and Respondent for
SALISH KOOTENAI COLLEGE,
Employer.
APPEAL FROM: Workers' Compensation Court, State of Montana
The Honorable Mike McCarter, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Rex Palmer, Attomey at Law, Missoula, Montana
For Respondent:
Ann E. Clark, Special Assistant Attomey General, State Compensation
Insurance Fund, Helena, Montana
Submitted on Briefs: January 17,2002
Decided: December 5,2002
Justice Terry N. Trieweiler delivered the Opinion of the Court.
71 The Claimant, Robert Flynn, filed a petition in the Workers' Compensation Court for
the State of Montana in which he alleged that the Respondent, State Compensation Insurance
Fund, should pay a proportionate share of the attorney fees he incurred to recover social
security disability benefits. Flynn also requested that the Court sanction the State Fund for
unreasonably reducing his temporary total disability benefits in an effort to recoup
overpayments. The Workers' Compensation Court denied both of Flynn's claims and Flynn
appeals. We affirm in part and reverse in part the judgment of the Workers' Compensation
Court.
72 We address the following issues on appeal:
73 1. Should the State Fund bear a proportionate share of the attorney fees incurred by
Flynn to recover social security disability benefits based on the common fund doctrine?
74 2. Was the State Fund entitled to reduce Flynn's workers' compensation benefits to
recover overpaid benefits?
FACTUAL BACKGROUND
75 On June 23, 1993, Robert Flynn was diagnosed with an occupational disease which
developed as a result of repetitive work activities associated with his job at the Salish
Kootenai College in Lake County, Montana. At all relevant times, the College was enrolled
in Compensation Plan Number Three of the Workers' Compensation Act and insured by the
State Fund. Following his diagnosis, Flynn filed a claim for compensation and the State
Fund accepted liability and tendered medical and temporary total disability (TTD) benefits
2
to Flynn. Flynn has remained totally disabled since 1993 and the State Fund recently
conceded that Flynn is permanently totally disabled (PTD).
76 Sometime prior to 1996, Flynn also filed a claim for social security disability (SSD)
I benefits. His claim was initially denied but later awarded retroactively by an administrative
law judge for the Social Security Administration. On February 8, 1996, after learning of the
SSD award, the State Fund advised Flynn that it was going to reduce his biweekly benefits
from $336.00 to $2 17.59, effective February 7,1996. The State Fund also notified Flynn that
! because of the retroactive application of the SSD award, it intended to recoup $14,006.25 in
overpaid benefits by an additional offset against Flynn's TTD benefits. However, the State
Fund did not implement the offset until September of 2000. As a result, Flynn was overpaid
an additional $947.28.
77 On September 26, 2000, the State Fund notified Flynn of its intent to recoup
$14,984.58 and began deducting an additional $49.86 from Flynn's weekly benefits. Flynn
requested that the State Fund postpone its recoupment plan until May of 2001. The State
Fund agreed to suspend the additional offset until April 24, 2001, at which time it would
resume recoupment at the rate of $54.64 per week.
78 On October 30, 2000, Flynn filed a petition for hearing with the Workers'
Compensation Court. The petition requested that the Court: 1) order the State Fund to pay
a proportionate share of the attorney fees incurred to recover the SSD benefits; and 2)
sanction the State Fund for unreasonably and unlawfully reducing Flynn's TTD benefits. On
May 18,2001, the Workers' Compensation Court denied Flynn's petition.
3
STANDARD OF REVIEW
79 The parties submitted an Agreed Statement of Facts to the Workers' Compensation
Court, and requested that the Court decide the legal issues presented by the parties. We
review the Workers' Compensation Court's conclusions of law to determine whether they
are correct. Matthews v. State Compensation Ins. Fund, 1999 MT 225, T[ 5, 296 Mont. 76,
7 5,985 P.2d 741,T[ 5.
DISCUSSION
ISSUE 1
710 Should the State Fund bear a proportionate share of the attorney fees incurred by
Flynn to recover social security disability benefits based on the common fund doctrine?
71 1 Sometime prior to 1996, Flynn submitted a claim for SSD benefits which the Social
Security Administration denied. Subsequently, Flynn incurred approximately $4,000 in
attorney fees to recover those benefits. Flynn contends that the State Fund benefitted from
his SSD award as much as he did because it can now reduce the disability benefits paid to
him by one-half the amount of the SSD award, and that it should therefore bear a
proportionate share of the $4,000 attorney fee based on the common h n d doctrine.
f 12 The Workers' Compensation Court rejected Flynn's attorney fee claim for three
reasons. First, it cited Stahl v. Ramsey Const. Co. (199 I), 248 Mont. 271, 8 11 P.2d 546, for
the proposition that no statutory or contractual authority supports Flynn's apportionment
claim. Second, the Court relied on Murer v. State Comp. Mut. Ins. Fund (1997), 283 Mont.
210,942 P.2d 69, for its conclusion that the common fund doctrine "has no application here
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6
[because] Claimant is not seeking attorney fees for others who may benefit by this decision,
rather he is seeking attorney fees with respect to his own entitlement." Finally, the Court
based its decision on statutory preemption. Citing ISC Distributors, Inc. v. Trevor (19 9 9 ,
273 Mont. 185, 202, 903 P.2d 170, 180, the Workers' Compensation Court held that
"[wlhere a conflict arises between the common law and a statute, the common law must
yield."
713 In Stahl, the claimant incurred attorney fees to recover SSD benefits and the Social
Security Administration withheld apercentage of the award for direct payment of his attorney
fees. Following the claimant's SSD award, the State Fund determined that it was entitled to
offset its future payment of benefits to account for the retroactive SSD award. The claimant
contended that since he had not received the amount withheld for fees, it should not be
included in the overpayment calculation.
114 This Court denied Stahl's request to, in effect, apportion costs and attorney fees
because no statutory or contractual authority existed for doing so. Stahl, 248 Mont. at 275,
8 11 P.2d at 548. However, Stahl presented a different theory for relief than is presented by
Flynn. Stahl did not argue for application of the common fund doctrine. Therefore, this
Court did not analyze the applicability of the common fund doctrine in Stahl. Accordingly,
Stahl is not dispositive.
715 Generally, the common fund doctrine authorizes assigning responsibility for fees
among those individuals who benefit from the litigation which created the common fund.
See Morris B. Chapman & Assocs., LTD. v. Kitzman (Ill. 2000), 739 N.E.2d 1263,1271. The
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doctrine entitles the party who created the fund to reimbursement of his or her reasonable
attorney fees from the common fund. Murer, 283 Mont. at 223, 942 P.2d at 76. Recently,
in Mountain West Farm Bureau v. Hall, 2001 MT 3 14,vI 15-18, 308 Mont. 29,vT 15-18,
38 P.3d 825, I [15-18, we summarized the elements of the common fund doctrine as follows:
T
1) an active beneficiary must create, reserve, or increase a common fund; 2) the active
beneficiary must incur legal fees in establishing the common fund; and 3) the common fund
must benefit ascertainable, non-participating beneficiaries. We enforce this doctrine because
equity demands that all parties receiving a benefit from the common fbnd share in the cost
of its creation. See Means v. Montana Power Co. (198 I), 191 Mont. 395,405,625 P.2d 32,
38.
716 With the aid of counsel, Flynn recovered SSD benefits in the approximate amount of
$1000 per month. It is uncontroverted that Flynn incurred attorney fees to recover this
award. This SSD award enabled the State Fund to reduce Flynn's weekly TTD benefits, and
subsequent PTD benefits, by "one-half the federal periodic benefits for the week" pursuant
to §§ 39-71-70 l(5) and -702(4), MCA. As a result of Flynn's litigation efforts, funds were
recovered which accrued to the substantial benefit of the State Fund. While the State Fund
reaped the benefit of Flynn's efforts, it was not required to intervene, risk expense, or hire
an attorney throughout the litigation proceedings. Consequently, we hold that Flynn's SSD
award constitutes an existing, identifiable monetary fund or benefit in which an ascertainable,
non-participating beneficiary maintains an interest.
717 The Workers' Compensation Court correctly cited the general rule of statutory
preemption. We agree that the common law is preempted where the law is statutorily
declared. See tj 1-1-108, MCA; Brewington v. Employers Fire Ins. Co. (1999), 297 Mont.
243,248,992 P.2d 237,241. However, the Workers' Compensation Act is silent on the issue
of attorney fee apportionment following benefit recoupment. Therefore, there exists no
statutory declaration which preempts the equitable principles of the common fund doctrine.
71 8 Accordingly, pursuant to the common fund doctrine, the State Fund should contribute,
in proportion to the benefits it actually received, to the costs of the litigation, including
reasonable attorney fees. The Workers' Compensation Court erred when it denied Flynn's
request for reasonable apportionment of attorney fees. To the extent it declined to apply the
common fund doctrine, the judgment of the Workers' Compensation Court is reversed.
ISSUE 2
719 Was the State Fund entitled to reduce Flynn's workers' compensation benefits to
recover overpaid benefits?
720 In 1993 the Legislature amended tj tj 39-7 1-701 and -702, MCA, to authorize insurers
to suspend biweekly compensation benefits to recover overpayment from those claimants
who receive social security benefits. However, the law in effect at the time of a work-related
injury governs the determination of workers' compensation benefits and the respective rights
of the insurer and employer. Buckman v. Montana Deaconess Hosp. (1986), 224 Mont. 3 18,
321,730 P.2d 380,382. Flynn was diagnosed with the occupational disease in June of 1993,
prior to the amendments' July 1, 1993, effective date. Therefore, the 1991 version of the
Workers' Compensation Act governs the disposition of Flynn's claim.
72 1 Flynn cites State ex rel. Mazurek v. District Court, 2000 MT 266, 7 18,302 Mont. 39,
7 18,22 P.3d 166,7 18, for the proposition that when the Legislature amends a statute, this
Court will presume that it intended to implement some change in the existing law. Flynn
argues that the Legislature's 1993 amendments imply that an insurer's unfettered right of
recoupment did not exist prior to July 1, 1993. Relying on a 1993 judgment from the
Workers' Compensation Court, Flynn insists that prior to July 1, 1993, an insurer could not
unilaterally suspend benefits to recoup overpayments absent a court order or the injured
claimant's consent. Flynn maintains that the State Fund had neither and, therefore, was not
entitled to terminate or reduce his benefits to recover an alleged overpayment.
722 The Workers' Compensation Court rejected Flynn's characterization of the state of
the law on overpayment recoupment in 1991. In so doing, the Court stated:
The [Mackney] decision . . . lends no support whatsoever to the claimant's
position. There is nothing in the decision stating that an insurer cannot
unilaterally reduce a claimant's benefits to recoup a SSD offset. . . . The law
is clear that an insurer is entitled to offset SSD benefits. That law puts
claimants on notice that if they receive retroactive benefits, the offset will
apply.
Claimant, however, urges that . . . an insurer lacked authority prior to July 1,
1993, to unilaterally reduce benefits to recoup the offset. The argument is
without merit. The new [amendments] sanction suspensioa of all benefits to
recoup the offset, which is the most extreme possible method of recoupment.
There is nothing in the adoption of the section indicating that the legislature
believed that insurers were prohibited from lesser measures of recoupment,
and nothing in the prior statutes which precluded such lesser measures.
123 The 1991 Workers' Compensation Act authorized insurers to offset benefit
distributions on account of an SSD award in 5 39-7 1-701(5), MCA (1991), which provided:
In cases where it is determined that periodic disability benefits granted
by the Social Security Act are payable because of the injury, the weekly
benefits payable under this section are reduced, but not below zero, by an
amount equal, as nearly as practical, to one-half the federal periodic benefits
for such week, which amount is to be calculated from the date of the disability
social security entitlement.
The purpose of the workers' compensation offset statutes is to prevent duplication of
disability pay. Watson v. Seekins (1988), 234 Mont. 309,314-15,763 P.2d 328,332. Prior
to 1993, the Workers' Compensation Act failed to address the recovery of prior payments
which become duplicate by virtue of a subsequent retroactive SSD award. However, what
once was a procedural vacuum has now been statutorily defined. Nevertheless, the 1993
legislative enactments do not transform the prior silence into a prohibition on recovery of
overpayments.
124 Had the Social Security Administration accepted Flynn's initial claim, the State Fund
could have reduced its weekly payments pursuant to 5 39-7 1-701( 5 ) , MCA (199 I), from the
time payments commenced. The fact that Flynn's SSD award was delayed should not
preclude offset for the same amount. To accept Flynn's construction of the 1991 Workers'
Compensation Act would be to frustrate the policy against double recovery. Therefore, we
conclude that the State Fund was entitled to suspend a portion of Flynn's benefits to recover
the alleged overpayment.
725 Because the State Fund was entitled to offset Flynn's benefits, and the 1991 Workers'
Compensation Act provides no methodology for recovering overpaid benefits, the only
remaining question is whether the method employed by the State Fund was reasonable. In
analyzing this same issue, the Workers' Compensation Court concluded:
An insurer has an obligation to act reasonably with regard to payment
of benefits. I do not determine that an insurer's unilateral offset for
overpayments is in every case reasonable. I only determine that it is not per
se unreasonable for an insurer to recoup overpayments despite a claimant's
objections. In this case, claimant has not presented sufficient evidence to
persuade me that the State Fund's offset for recoupment was unreasonable.
[Citations omitted.]
We agree that nothing in the record indicates that the State Fund acted unreasonably in
offsetting Flynn's benefits. Therefore, the Workers' Compensation Court did not err when
it concluded that the State Fund was entitled to reduce Flynn's disbursements to the extent
that it did to recover overpaid benefits.
726 The judgment of the Workers' Compensation Court is affirmed in part, reversed in
part, and remanded for proceedings consistent with this opinion.
We Concur:
Chief Justice
. ,/ ,'
/,
t
Justices
Justice W. William Leaphart did not participate in this Opinion.
Justice Jim Rice concurring in part and dissenting in part.
727 I concur with the Court's holding on Issue 2, but respectfully dissent from the Court's
I holding under Issue 1. This is not an appropriate case for the common fund doctrine, and its
I application here impinges on state statute.
I 728 First, there is no "common" fund. "[Wlhen a party has an interest in a fund in
common with others and incurs legal fees in order to establish" the fund, that party is entitled
to reimbursement of legal fees. Murer, 283 Mont. at 222, 942 P.2d at 76. The State Fund
was not a party in Flynn's SSD proceeding, made no claim against the Social Security
I Administration, and does not share a claim with Flynn. Flynn's SSD award is personal to
I him and all funds obtained thereunder are entirely under his control. The State Fund has no
claim of entitlement to, or power to control the disbursement of, any funds paid to Flynn by
the Social Security Administration.
129 Neither is there a common interest. Flynn successfully pursued a personal claim for
Social Security disability benefits. The State Fund has no such claim, but rather, pursuant
to $5 39-71-701 (9,and -702(4), MCA, is authorized to reduce payment of state statutory
disability benefits in an amount of one-half of Flynn's federal benefits. Contrary to the
Court's conclusion that this provision makes the State Fund an "ascertainable, non-
participating beneficiary" to Flynn's Social Security benefits, the State Fund's status here is
one of creditor. The Fund is not a beneficiary with a common claim to federal benefits.
730 In Neal v. Stanislaus County (1983), 141 Cal.App.3d 534, plaintiff attorney filed an
action to compel the county to share payment of his attorney fees for recovery of Social
Security income for his clients, who had received interim financial assistance from the
county. Because his work resulted in the county being fully reimbursed amounts paid to his
clients, the attorney claimed that the federal benefits constituted a common fund from which
the county was paid as a passive beneficiary. He thus argued that the county was obligated
to pay attorney fees in accordance with the benefits derived from the attorney's efforts, to
avoid unjust enrichment.
73 1 The Neul court discussed the development of the common fund doctrine and noted
particularly the existence of contractual obligations which furthered the doctrine. Neal, 141
Cal.App.3d at 538. It concluded that the county's interim financial assistance program
created a debtor-creditor relationship which removed it from a common fund sharing of
attorney fees. Neal, 141 Cal.App.3d at 538. In so doing, the court noted:
The mere fact that defendant [county] benefits from plaintiffs efforts
does not in itself entitle plaintiff to fees from defendant. In County o Tulare
f
v. City o Dinuba [citation omitted], the Supreme Court stated:
f
"The underlying principle in all the cases where one has been allowed
compensation out of a common fund belonging to others for expenses incurred
and services rendered on behalf of the common interest is the principle of
representation or agency. . . . The fact that one may be benefitted by an action
brought by another is not of itself sufficient to justify a court in assessing costs
against the one who also profits by said action. Some contractual relation or
some equitable reason sufficient to support an allowance of costs must be
shown to exist to justify a court of equity in making such assessment."
Here, there is no contractual relation or overriding equitable rationale
of unfairness to plaintiff which supports an allowance of fees.
Neal, 141 Cal.App.3d at 539.
732 While Neal involved state statutes and federal regulations not at issue here, its
reasoning in regard to the common find doctrine is instructive. Like the county in Neal, the
State Fund receives a benefit, but that, without more, is an insufficient basis for application
of the doctrine. The State Fund's benefit is one provided by a state statute which creates a
creditor's claim, which the Fund and Flynn sought to negotiate. The Court's holding
infringes upon that statute, because it deprives the State Fund from collecting the fill 50
percent of Flynn's federal award authorized therein.
733 The common fund doctrine is "rooted in the equitable concept[] of quasi-contract."
Murer, 283 Mont. at 222,942 P.2d at 76 (quoting Means v. Montana Power Co. (198 l), 191
Mont. 395, 403, 625 P.2d 32, 37). It is applied in cases involving "principle[s] of
representation or agency." Neal, 141 Cal.App.3d at 539. Cases involving multiple
beneficiaries, active and passive, with common interests in a common fund are appropriate
for application of the doctrine. See Rausch, Fisch and Frost v. State Compensation
Insurance Fund, 2002 MT 203, 7 48,311 Mont. 210,748,54 P.3d 25, 7 48.
734 The Court's merger of the common h n d doctrine with the statute at issue here is error.
Further, the Court's holding divorces the doctrine from its findamentaI precepts. Arguably,
the doctrine is now applicable to virtually anyone deriving a financial benefit from a
claimant's settlement or award. That was not, and is not, the purpose of the doctrine.
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735 I would affirm the Workers' Compensation Court, which would keep our case law on
this issue consistent, as established in Stahl.
Chief Justice Karla M. Gray joins in the foregoing concurring and dissenting opinion of
Justice Rice.