Baksalary v. Smith

• Decision Date: 01 February 1984
• Docket Number: Civ. A. No. 76-429.
• Citation: 579 F. Supp. 218
• Parties: Richard BAKSALARY, William Jones, Morris Tucker, and Charles Samuel Individually and on behalf of all others similarly situated, Plaintiffs, v. Paul J. SMITH, C. John Urling, Jr., William J. Sheppard, Grace M. Sloan, The State Workmen's Insurance Fund, Pennsylvania Manufacturers' Association Insurance Company, American Mutual Liability Insurance Company, The School District of Philadelphia, Bituminous Casualty Corporation, and all other insurance carriers and/or self-insured employers similarly situated, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

579 F. Supp. 218

Richard BAKSALARY, William Jones, Morris Tucker, and Charles Samuel Individually and on behalf of all others similarly situated, Plaintiffs, v. Paul J. SMITH, C. John Urling, Jr., William J. Sheppard, Grace M. Sloan, The State Workmen's Insurance Fund, Pennsylvania Manufacturers' Association Insurance Company, American Mutual Liability Insurance Company, The School District of Philadelphia, Bituminous Casualty Corporation, and all other insurance carriers and/or self-insured employers similarly situated, Defendants.

Civ. A. No. 76-429.

United States District Court, E.D. Pennsylvania.

February 1, 1984.

Harold I. Goodman (argued), Mark B. Segal, David Rudovsky, Rita L. Bernstein, Community Legal Services, Inc., Philadelphia, Pa., for plaintiffs.

Robert H. Nuttall (argued), Robert T. Lear, Law Dept., School Dist. of Philadelphia, Philadelphia, Pa., for defendant School Dist. of Philadelphia.

Henry H. Janssen (argued), Rawle & Henderson, Philadelphia, Pa., for defendant Bituminous Cas. Corp.

Christopher J. Pakuris (argued), Philadelphia, Pa., for defendant Pennsylvania Manufacturers' Ass'n Ins. Co.

Joseph R. Thompson (argued), Philadelphia, Pa., for intervenor Liberty Mut. Ins. Co.

Leroy S. Zimmerman, Debra K. Wallet (argued), Allen C. Warshaw, Harrisburg, Pa., for "Commonwealth" defendants Paul J. Smith, C. John Urling, Jr., William J. Sheppard, and Grace M. Sloan.

William C. Steppacher (argued), State Workmen's Ins. Fund, Scranton, Pa., for defendant State Workmen's Ins. Fund.

Robert G. Hanna, Jr., Marshall, Dennehey & Warner, P.A., Philadelphia, Pa., for defendant American Mut. Liability Ins. Co.

Before ADAMS, Circuit Judge,^* and GREEN and POLLAK, District Judges.

OPINION

LOUIS H. POLLAK, District Judge.

I.

Plaintiffs initiated this action in 1976, challenging the constitutionality of certain provisions of the Pennsylvania Workmen's Compensation Act, Pa.Stat.Ann. tit. 77, §§ 1-1031 (Purdon 1952 and Supp.1982). In particular, plaintiffs allege that the "automatic supersedeas" provision of section 413 of the Act, Pa.Stat.Ann. tit. 77, § 774 (Purdon Supp.1982), permits employers and insurers to terminate worker's compensation benefits without according due process of law to those whose benefits are terminated, in violation of the Fourteenth Amendment. The automatic supersedeas terminates benefits without notice to the person receiving benefits. It requires only an employer's or insurer's petition reciting that the benefit recipient has returned to work at the same or higher pay or a petition accompanied by a physician's affidavit averring that the recipient has recovered. Plaintiffs make their due process claim in an action under the Civil Rights Act of 1871, 42 U.S.C. § 1983 (Supp. V 1981).

A decade ago a three-judge panel of this court heard a challenge to section 413's predecessor. In Silas v. Smith, 361 F.Supp. 1187 (E.D.Pa.1973), the court considered the case of an individual whose worker's compensation benefits were terminated by his employer's insurer under the automatic supersedeas provision then in effect. The court found no state action in this termination. The court further stated that even had it found state action, it would not have found a violation of the due process clause. The Silas court, however, faced these questions at a time when employers and employees could opt out of the Pennsylvania Workmen's Compensation Act. Further, the Silas court was not called on to consider the problem of the automatic supersedeas' application to public employees or to employees of employers insured by the State Workmen's Insurance Fund, an insurer administered by state officials. Therefore, as we explain more fully below, the ruling in Silas is not controlling with respect to the claims advanced in the lawsuit now before the court. Because the prior decision in Silas is not controlling here, it was proper that, after this action was commenced, Judge Fogel ordered that "a three-judge court be convened ... in that, pursuant to 28 U.S.C. §§ 2281 and 2284, the complaint raises substantial constitutional issues and requests as relief the enjoining of the enforcement, operation and execution of a state statute."¹

On March 27, 1978, an order was entered permitting this case to proceed as a plaintiffs' and defendants' class action under Fed.R.Civ.P. 23(b)(2). The plaintiff class includes "all persons who have been or will be receiving benefits pursuant to the Pennsylvania Workmen's Compensation Act and who have had or will have such benefits terminated, suspended, reduced or otherwise deprived without advance notice and opportunity for a prior evidentiary hearing." The defendant class includes "all insurance companies, mutual associations and employment establishments authorized to insure the payment of Pennsylvania Workmen's Compensation benefits who have acted, or will act, to terminate, suspend, reduce, or otherwise deprive benefits to previously eligible claimants without advance notice and opportunity for a prior evidentiary hearing ...."

Discovery proceeded for five years. Then, after a series of conferences, the court ordered the parties to submit a set of stipulations during the summer of 1982. Plaintiffs presented their evidence by way of stipulations and affidavits in November. Defendants then moved for involuntary dismissal pursuant to Fed.R.Civ.P. 41(b). This court heard oral argument on April 7, 1983. At that time, we deferred decision on the 41(b) motion until defendants' evidence had been submitted. Defendants then put in their evidence by stipulations and affidavits. Because plaintiffs offered no rebuttal evidence, the entire case was before us for decision on the merits. This opinion constitutes our findings of fact and conclusions of law.

II.

This case involves a challenge to one of the methods by which an employer or insurer obligated to pay benefits under the Pennsylvania Workmen's Compensation Act can cease paying those benefits. Through a set of procedures not pertinent to this action, an individual covered by the Act and injured in the course of his employment can obtain the right to receive weekly benefits payments from his employer. The employer must insure against this obligation. Pa.Stat.Ann. tit. 77, § 501 (Purdon Supp.1982); Stipulations of Fact ¶ 16. This requirement may be satisfied in one of three ways: (1) the employer may retain a private insurance carrier licensed to provide worker's compensation insurance; (2) the employer may insure through the State Workmen's Insurance Fund, an insurance fund administered by the state; (3) the employer may self-insure. Id. When an employer purchases insurance, the insurer assumes all of the employer's liabilities under the Act and, in effect, stands in the employer's shoes with respect to the employees receiving worker's compensation. See Pa.Stat.Ann. tit. 77, §§ 501, 701 (Purdon Supp.1982); Cease v. Thomas, 155 Pa. Super. 215, 38 A.2d 547 (1944). Thus, in the ordinary case of an insured employer, the employer has little to do with a compensation matter once the insurer has begun to pay compensation benefits.

When a self-insured employer or an insurer believes that an injured employee who receives compensation benefits has resumed work or recovered his or her health, the employer or insurer will typically seek to terminate the employee's worker's compensation benefits. If the employee does not agree to a termination of his benefits, the employer or insurer files a petition to terminate or modify the compensation with the agency which administers the worker's compensation program, the Bureau of Worker's Compensation. Pa.Stat.Ann. tit. 77, § 772 (Purdon Supp.1982). A referee from the Bureau then holds hearings to determine whether grounds for termination or modification exist.

Section 413 of the Act, the subject of this lawsuit, deals with the right to compensation between the time an employer or insurer petitions for termination or modification and the time the referee makes a final determination. Section 413, in pertinent part, provides:

The filing of a petition to terminate or modify a notice of compensation payable or a compensation agreement or award as provided in this section shall operate as a supersedeas, and shall suspend the payment of compensation fixed in the agreement or by the award, in whole or to such extent as the facts alleged in the petition would, if proved, require only when such petition alleges that the employe has returned to work at his prior or increased earnings or where the petition alleges that the employe has fully recovered and is accompanied by an affidavit of a physician on a form prescribed by the Bureau of Worker's Compensation to that effect which is based upon an examination made within fifteen days of the filing of the petition. In any other case, a petition to terminate or modify a compensation agreement or other payment arrangement or award as provided in this section shall not automatically operate as a supersedeas but may be designated as a request for a supersedeas, which may then be granted at the discretion of the referee hearing the case.

Pa.Stat.Ann. tit. 77, § 774 (Purdon Supp. 1982).

Thus, in two sorts of cases an employee receiving benefits can have his benefits terminated pending disposition of his employer's or his employer's insurer's petition to terminate or modify those benefits. The first sort of case is one where the petition alleges that the employee has returned to work at the same or higher wages. The second sort of case is one where the petition alleges that the employee has fully recovered from his disability and the petition is accompanied by a doctor's affidavit averring recovery based upon an examination of the employee within the previous fifteen days.

In either of the two automatic supersedeas situations, the filing of the petition suspends the employer's or insurer's obligation forthwith. Before the employer or insurer can successfully...