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ORDER AND JUDGMENT CONCERNING CLASS ACTION, RETROACTIVITY,
AND COMMON FUND
Summary: On appeal of this case, the Montana Supreme Court held that an independent contractor exemption does not conclusively bar a worker from claiming he was an employee and from seeking workers' compensation benefits. It remanded the matter for further proceedings consistent with its decision. Mathews v. Liberty Northwest Ins. Corp., 2003 MT 116, 315 Mont. 441, 6 P.3d 865. [Correct citation 68 P.3d 865 (05/31/05).] On remand, the individual entitlement of the claimant to workers' compensation benefits was settled and that settlement was approved. Claimant now seeks common fund attorney fees and to amend his original petition to add class action allegations
Held: The request to amend the petition comes too late and is denied. Moreover, the class action request would be denied even if properly before the Court since the claimant cannot show that common questions of law and fact are predominant as to the proposed class or that a class action is superior to individualized litigation. Even though the Court determines that the Supreme Court's decision is retroactive, claimant is not entitled to common fund attorney fees. Although the Supreme Court's decision established a precedent which may aid the workers' compensation claims of some workers, it did not establish the entitlement of any readily identifiable workers to benefits, therefore no common fund was created.
¶1 On appeal from this Court's original decision in this case, 2002 MTWCC 6, the Supreme Court held that the independent contractor (IC) exemption issued to the claimant in this case was not conclusive of his employment status and that in fact he was an employee and therefore entitled to workers' compensation benefits with respect to an on-the-job injury. Mathews v. Liberty Northwest Ins. Corp., 2003 MT 116, 315 Mont. 441, 6 P.3d 865. [Correct citation 68 P.3d 865 (05/31/05).] The Court remanded for "further proceedings consistent with this Opinion."
¶2 After remand, the parties settled the claimant's individual entitlement to workers' compensation benefits. However, the claimant's attorney now moves to amend the petition to seek class action status and asks the Court to certify classes of both claimants and insurers. He also seeks common fund attorney fees.
¶3 The matters to now be decided are:
¶4 Other issues have been identified by Liberty Northwest Insurance Corporation (Liberty), but those issues need not be addressed in light of my resolution of the first three issues. I also note that those additional issues, such as the statute of limitations defenses to individual claims and whether settled cases should be excluded from any common fund, are essentially implementation issues which can be addressed as they arise during the implementation phase of the case if that phase is ever reached. Similar implementation issues have arisen in administering other common fund cases, specifically in the proceedings following Murer v. State Compensation Ins. Fund, 283 Mont. 210, 222, 942 P.2d 69, 76 (1997) (Murer III); Broeker v. State Compensation Mutual Ins. Fund, 275 Mont. 502, 914 P.2d 967 (1996); and Rausch v. State Compensation Ins. Fund, 2002 MT 203, 311 Mont. 210, 54 P.3d 25. In each of those cases, the parties and the Court were able to resolve the specific implementation issues by agreement or through rulings to which the parties ultimately acquiesced. Finally, I note that implementation of issues which the parties have not presently contemplated may arise in administering any common fund. For all of these reasons, I find that the other issues raised by Liberty are not presently ripe for decision.
¶6 In seeking class action status, the claimant asks the Court to certify not only a class of claimants but also a class of respondents. The proposed claimants' class consists of those claimants who have been denied benefits because they held independent contractor (IC) exemptions.(1) The proposed class of respondents consists of all those insurers which have denied benefits to claimants based on IC exemptions.
¶7 Since the claimant is seeking class certification only with respect to the claimants who have been denied benefits, the proposed class encompasses only workers who have applied for benefits. The number of such claimants may not be significant. In a 1997 decision, Bouldin v. Uninsured Employers' Fund, 1997 MTWCC 58, this Court held that the IC exemption is conclusive and bars a workers' compensation claim whether or not the worker was in fact an employee. That decision was not appealed and stood unchallenged until 2001, when the petitions in this case and in Wild v. State Compensation Ins. Fund, 2002 MTWCC 9, were prosecuted.
¶8 The original petition filed in this case was brought by a single claimant. That petition did not contain any class allegations or request for class certification. A final determination and judgment was made and entered on the original petition. While the Supreme Court reversed and remanded the case for "further proceedings consistent with this Opinion," those "further proceedings" do not contemplate an expansion of this case into a class action. The sole questions addressed and raised on appeal were the effect of the IC exemption and the claimant's entitlement to benefits. The further proceedings contemplated on remand involve enforcing the claimant's entitlement to benefits.
¶9 The claimant seeks to expand the proceedings by amending his petition despite the fact that judgment has been entered on the merits of the claimant's original petition. There is no provision either in this Court's rules or the Rules of Civil Procedure allowing an amendment to a petition after a decision has been rendered and judgment entered. Rule 24.5.316 of this Court provides that any motion to amend the petition must be filed within the time provided by the Court's scheduling order; the deadline fixed in the scheduling order expired long ago. Rule 15 of the Montana Rules of Civil Procedure, which governs amendments to pleadings in district court actions, is of no help to the claimant: It similarly does not provide for amendments following judgment.
¶10 My prior decisions in Flynn v. State Compensation Ins. Fund, 2003 MTWCC 55 and Schmill v. Liberty Northwest Ins. Corp., 2004 MTWCC 47, do not undermine my decision concerning the untimeliness of the claimant's motion to amend in this case. Those cases involved requests for common fund attorney fees which had not been pled in the original petitions. As I noted in those decisions, the right to common fund fees arises only after the substantive litigation is completed. Moreover, it arises automatically as a lien on benefits due to the claimants benefitted by the substantive decision. Flynn, ¶¶ 10-14. Class actions do not arise automatically as the result of successful litigation and are subject to specific pleading and procedural requirements.
¶11 I therefore hold that the claimant's motion to amend his petition to add class action allegations is untimely and must be denied.
¶12 Assuming the claimant's motion to add a request for class action status is timely, I address the merits of the request.
¶13 As in Murer I, discussed below, the claimant herein is seeking certification of both a class of claimants and a class of respondents. The class of claimants which he urges should be certified consists of claimants holding IC exemptions who have been denied benefits on account of the exemptions. See ¶ 6. The proposed class of respondents consists of:
(Proposed Class Action Petition for Hearing, ¶ 8.)
¶14 Although the Workers' Compensation Court has no formal rule governing class actions, it looks to the Montana Rules of Civil Procedure to determine whether a class action is appropriate. Murer v. Montana State Compensation Mutual Ins. Fund, 257 Mont. 434, 436, 849 P.2d 1036, 1037 (1993) (Murer I). In Murer I the Supreme Court said:
¶15 Murer involved a challenge to the State Fund's application of caps on benefits enacted in 1987 and 1989. The State Fund took the position that the caps applied to benefits paid after June 30, 1991 to claimants injured between July 1, 1987 and June 30, 1991, since the cap was in effect at the time of the claimants' injuries. The claimants urged that the State Fund's interpretation was wrong and that all benefits paid after June 30, 1991, should be paid at the higher, non-capped rates. They sought the rate increase on their own behalf and on behalf of all other similarly situated claimants.
¶16 Murer I is important not only because it establishes Rule 23, Mont. R. Civ. P., as the basis for deciding class action requests in the Workers' Compensation Court, but also because it is the only case which has ruled on a class action request in a workers' compensation case. I therefore look to that decision for initial guidance in determining the probable merits of the request in this case.
¶17 The question in Murer I was whether this Court erred in denying class certification. Two classes were at issue. The first was a proposed class of claimants injured between July 1, 1987 and June 30, 1991, and receiving benefits after June 30, 1991. The other was a proposed class of respondents consisting of all workers' compensation insurers in Montana. This Court denied certification with respect to both classes and the Supreme Court affirmed based on Rule 23(a), Mont. R. Civ. P., which requires:
¶18 The decision in Murer I turned on subsection (3) of Rule 23(a), commonly referred to as the "typicality" requirement. This Court found that the typicality requirement had not been met. The Supreme Court agreed, writing as follows:
257 Mont. at 437-38, 849 P.2d at 1038. In the final paragraph of Murer I, the Court held:
¶19 The final holding in Murer I, together with the Court's earlier discussion, is determinative as to the present claimant's request for certification of a class of respondents. As in Murer, the claimant is requesting that all workers' compensation insurers be brought into the action even though he has no links to those insurers. For the reasons set out in Murer I, that request must be denied.
¶20 The request for certification of a claimant's class is more difficult, initially because of ambiguity created by the final paragraph of Murer I and secondarily because of the Supreme Court's later decision in Murer v. State Compensation Mutual Ins., 283 Mont. 210, 222, 942 P.2d 69, 76 (1997) (Murer III).
¶21 The last paragraph of Murer I is the ultimate holding in the case and is premised solely on the failure to meet the typicality requirement with respect to the proposed class of respondents. That limiting holding makes the precedential effect of the Court's discussion regarding the class of claimants unclear. On the one hand, the Court sets out a number of variables affecting the potential benefits of the proposed class of claimants, followed by a concluding sentence suggesting that the variables are too great to certify that class. The concluding sentence was, "There are times when competent counsel are not able to fairly and adequately protect the interest of the class." 257 Mont. at 438, 849 P.2d at 1038. Moreover, the Court could have certified the proposed class of claimants, or even a portion of that proposed class, without certifying the proposed class of respondents. On the other hand, the Court did not separately hold that the proposed class of claimants could not be certified, only that the Workers' Compensation Court did not abuse its discretion in denying certification since there were insufficient "judicial links among the defendants." 257 Mont. at 439, 849 P.2d at 1039.
¶22 The lack of a clear and unequivocal holding that the proposed class of claimants did not meet the typicality requirement is even more troublesome in light of the Supreme Court's third Murer decision, Murer v. State Compensation Ins. Fund, 283 Mont. 210, 222, 942 P.2d 69, 76 (1997) (Murer III), holding that a common fund was created by the second Murer decision, Murer v. Montana State Compensation Ins. Fund, 267 Mont. 516, 885 P.2d 428 (1994) (Murer II). It is difficult to see how a common fund can exist if the typicality requirement applicable for class actions is not met. In the decision giving rise to Murer III, I held that the common fund doctrine was inapplicable precisely because of a lack of typicality among claimants, even citing the Supreme Court's language in Murer I. I pointed out:
The entitlements of the non-participating claimants in this case are not so readily determined. In Murer v. State Compensation Mut. Ins. Fund, 257 Mont. 434, 437, 849 P.2d 1036, 1038 (1993), the Supreme Court enumerated some of the differences among claimants:
Murer v. State Compensation Ins. Fund, 1995 MTWCC 39A-1, Order Denying Attorney Fees Under Common Fund Doctrine at 7 (August 7, 1995). Nonetheless, in Murer III the Supreme Court held that the common fund doctrine applied.
¶23 A finding that a common fund exists has consequences which are very similar to those in a class action. Before common fund fees can be determined, all claimants entitled to benefits under the substantive Court decision must be identified and the additional benefits due each of them must be determined. The same would be true if a class consisting of the benefitted claimants had been certified in the first place. The difference between the two remedies may simply be who pays attorney fees.
¶24 In Murer III the Supreme Court made no attempt to reconcile its denial of class action status in Murer I with its determination that a common fund existed. Moreover, in discussing Murer I, the Court in Murer III seemed to view Murer I as resting on different grounds than those quoted verbatim earlier in this decision. Discussing Murer I, the Court said:
Murer III at 215, 942 P.2d at 72. While the decision in Murer I briefly points out that trial courts, including and especially the Workers' Compensation Court, have discretion to determine the most efficient manner of resolving litigation, Murer I at 436, 849 P.2d at 1037, Murer I did not quote or even refer to the language from the Workers' Compensation Court decision which is quoted in Murer III. In Murer I the Court noted that one of the reasons the Workers' Compensation Court denied certification was because it found that the proposed class did not comply with Rule 23(a), Mont. R. Civ. P. It then affirmed that finding. By reaching back to and quoting from the original Workers' Compensation Court decision regarding the effect of a final judgment without class certification, and then concluding that the decision in Murer I rested "[o]n that basis," Murer III at 215, 942 P.2d at 72, I can only wonder if Murer III limits, if not implicitly rejects, the typicality discussion in Murer I, at least as to the proposed class of claimants.
¶25 Each class action request must nevertheless be analyzed on its own merits Moreover, the typicality requirement is only one of six elements which must be met under Rule 23(a) and (b)(d). Those six requirements are:
McDonald v. Washington, 261 Mont. 392, 400, 862 P.2d 1150, 1155 (1993).
¶26 In this case and in Wild v. State Compensation Ins. Fund, 2003 MT 115, 315 Mont. 425, 68 P.2d 855, the Supreme Court held that the IC exemption does not bar a claim by an injured worker where the employer has not made an initial good faith effort to determine whether the worker is in fact an independent contractor or where the employer thereafter fails to treat the worker as an independent contractor. In Wild the claimant was one of several roofers employed on a roofing job and was paid by the hour. He was given the option of working as an employee or an independent contractor and was paid an additional $5 an hour because he chose the latter. The situation in this case was nearly identical: The employer offered the claimant the option of signing on as an employee or independent contractor. As an independent contractor he received a higher hourly wage but performed the same work as employees.
¶27 Approximately 29,000 Montana workers held IC exemptions in fiscal year 2002.(2) The precedent established by the Supreme Court decisions in Mathews and Wild does not establish the entitlement of any of those workers to workers' compensation benefits. To benefit from the Mathews and Wild decisions, a worker holding an IC exemption must prove as a matter of fact that he or she is in fact an employee.(3) State ex rel. State Compensation Mut. Ins. Fund v. Berg, 279 Mont. 161, 182, 927 P.2d 975, 987 (1996). The worker must then prove that either the employer did not make an initial good faith inquiry into whether the worker was in fact an independent contractor or thereafter treated the worker in a manner inconsistent with IC status. Then, the worker must still prove that he or she was in fact injured in the course and scope of employment.
¶28 Given the hurdles that each individual claimant must surmount even with the benefit of the Mathews and Wild decisions, it is unlikely that the typicality requirement is met. The claimants in Mathews and Wild had easy cases factually. Other independent contractor cases must be determined based on their own unique facts.
¶29 Moreover, as set out in requirements five and six for class actions, ¶ 26, the claimant herein must satisfy the Court that "questions of law or fact common to the members of the class predominate over questions of the individual members" and that a "class action is superior to other methods of adjudicating the controversy." The only question of fact or law that is common is the question concerning the conclusiveness of the IC exemption. Questions of fact unique to individual claimants predominate over that question. Each case will have to be decided individually based upon its own facts. Thus, class certification is not superior to individual litigation.
¶30 I therefore conclude that the claimant cannot prevail in his request for class certification.
¶31 Liberty raises numerous arguments in opposition to the claimant's request for common fund attorney fees. Those arguments include lack of jurisdiction, failure to plead common fund fees, due process, res judicata, and equitable estoppel. All of these defenses were addressed and rejected in this Court's decision in Schmill v. Liberty Northwest Ins. Corp., 2004 MTWCC 47.
¶32 However, the common fund doctrine requires more than the establishment of a precedent which may benefit others; the precedent must in fact "create a common fund which directly benefits an ascertainable class of nonparticipating beneficiaries." Murer III at 223, 942 P.2d at 76. Unlike Murer III, where "claimants established a vested right on behalf of the absent claimants to directly receive immediate monetary payments of past due benefits underpayments," id., in this case the Mathews' decision does not establish a direct entitlement to benefits on behalf of other readily ascertainable claimants. The decision established no more than a precedent which may aid some workers in the pursuit of their individual claims for benefits. Therefore, no common fund has been created. Lacking a common fund, the claimant's attorney is not entitled to common fund attorney fees.
¶33 Finally, Liberty urges that the Mathews decision should be applied prospectively only.
¶34 In my recent decision in Schmill v. Liberty Northwest Ins. Corp., 2004 MTWCC 47, I reviewed the current status of the law governing retroactive application of judicial decisions in civil cases.(4) I concluded that the three-part test of Chevron Oil Co. v. Huson, 404 U.S. 97 (1971), still applies in Montana. The Chevron test is most recently summarized in Ereth v. Cascade County, 2003 MT 328, 318 Mont. 355, 81 P.3d 463 as follows:
¶35 In applying the first factor, consideration must be given to this Court's prior decision in Bouldin v. Uninsured Employers' Fund, 1997 MTWCC 58, which held that an IC exemption is conclusive as to employment status and bars any workers' compensation claim. That decision was not appealed and was the governing precedent for six years, i.e., until Mathews and Wild were decided. Mathews and Wild did not "overrule" prior precedent since the Bouldin decision was of an inferior court and the Supreme Court had not previously addressed the issue. However, the Bouldin decision, and the fact that it went unchallenged for several years, supports a conclusion that the decisions in Mathews and Wild were "not clearly foreshadowed." Moreover, section 39-71-401(3), MCA (1999), lent strong support to the result in Bouldin and in this Court's prior decisions in Mathews and Wild. The subsection provides:
The Supreme Court found this provision in conflict with other provisions of the Workers' Compensation Act and declined to apply it literally.(5) Wild at ¶¶ 20-22. The fact, however, that the decision rested on reconciling conflicting provisions is further support for a conclusion that the Mathews and Wild decisions were not clearly foreshadowed. I therefore conclude that the first factor favors non-retroactive application of the decisions.
¶36 Application of the rule retrospectively would, however, further the rule announced in Wild and Mathews. Failure to apply the rule retroactively would deprive some injured workers, who are employees, benefits that are otherwise due them. Factor two therefore favors retroactive application.
¶37 Finally, I consider the "equity" of retroactive application. In analyzing this factor, I note that the likely workers who will benefit from retroactive application are those workers with IC exemptions who have notified their employers within thirty days of their work-related injuries, § 39-71-603, MCA, and have either already filed a workers' compensation claim or still have time to submit a claim within the period prescribed by section 39-71-601, MCA, usually one year following the injury. While untimeliness of notice and the untimeliness of a written claim are affirmative defenses that may be waived, it is unlikely that insurers would engage in any wholesale waiver of those or other defenses. Thus, applying Mathews and Wild retroactively will have very limited impact. Moreover, insurers can hardly argue surprise with respect to claims that are timely made. Equity favors retroactive application.
¶38 Weighing all three Chevron factors, I conclude that the decisions in Mathews and Wild are retroactive.
¶39 The rule announced in Mathews v. Liberty Northwest Ins. Corp, 2003 MT 116 and Wild v. State Compensation Ins. Fund, 2003 MT 115, regarding the non-conclusiveness of IC exemptions is retroactive, however, the claimant's request for leave to add a class action claim and certify the proposed class is denied. His request for common fund attorney fees claim is also denied. Since his individual claim has been settled, and that settlement approved, the claimant's remaining post-remand motions and claims are dismissed with prejudice.
¶40 This JUDGMENT is certified as final for all purposes.
DATED in Helena, Montana, this 8th day of July, 2004.
c: Mr. Geoffrey C. Angel
1. The proposed amended petition, Ex. A to Motion to File Amended Petition for Hearing, describes the class of claimants as follows:
2. The Workers' Compensation 2002 Annual Report published by the Department of Labor and Industry, which is the latest report available at the time of the present decision, reports a total of 29,204 active independent contractor exemptions for fiscal year 2002.
3. Even though there is a presumption that a worker is an employee, § 39-71-120(2), MCA, that presumption is seriously eroded where the worker swears under oath that he or she is an independent contractor. Rule 24.35.111 of the Department of Labor and Industry, which implements the statute governing IC exemptions, provides:
4. Retroactivity of criminal decisions was not surveyed since those cases typically involve whether a decision should be applied to other criminal cases in which judgments have already become final or in which the time for appeal has expired. E.g., Schriro v. Summerlin, United States Supreme Court Slip Opinion (June 24, 2004).
5. The Court did not consider or discuss the possible application of the rule of statutory construction "that when a general and particular provision of statute are inconsistent, the particular provision will prevail." State ex rel. Needham v. Justice Court, 119 Mont. 89, 97, 171 P.2d 351, 355 (1946); see also Sun Ins. Co. of New York v. Diversified Engineers, Inc., 240 F.Supp. 606 (D. Mont. 1965).
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