Belling v. Wash. State Emp't Sec. Dep't

• Decision Date: 04 October 2018
• Docket Number: No. 95097-1,95097-1
• Citation: 427 P.3d 611
• Parties: Christopher BELLING, Petitioner, v. WASHINGTON STATE EMPLOYMENT SECURITY DEPARTMENT, Respondent.
• Court: Washington Supreme Court

427 P.3d 611

Christopher BELLING, Petitioner,

v.WASHINGTON STATE EMPLOYMENT SECURITY DEPARTMENT, Respondent.

No. 95097-1

Supreme Court of Washington.

Argued June 14, 2018

Filed October 04, 2018

Darrell K. Smart, Smart Law Offices, PS, 3600 Kern Road, Yakima, WA 98901-2309, Christopher Luke Childers, Smart Law Offices, P.S., 309 N. Delaware Street, P.O. Box 7284, Kennewick, WA 99336-7750, for Petitioner.

Leah E. Harris, April Suzanne Benson, Washington State Attorney General's Office, 800 5th Avenue, Suite 2000, Seattle, WA 98104-3188, for Respondent.

González, J.

¶ 1 Under some circumstances, when a person is forced to litigate to recover an award, others who seek to share in that award must also share in the attorney fees. This is an exception to the American rule that parties generally pay for only their own attorneys. Under Washington statutes, when a person receives both unemployment and workers’ compensation benefits for the same period of time, the unemployment benefits must be repaid. RCW 50.20.190. There is an exception, however, for situations when "equity and good conscience" makes repayment unfair under the circumstances. RCW 50.20.190(2).

¶ 2 In this case, Christopher Belling was forced to litigate to receive workers’ compensation. Effectively, the Employment Security Department seeks to share in that workers’ compensation award. We hold that the department must consider whether equity and good conscience requires it to share in Belling’s attorney fees as part of its larger consideration of whether it would be fair to partially waive reimbursement of overpaid benefits under RCW 50.20.190(2). Given the case presented to the department, we cannot say it erred in declining to reduce reimbursement to account for Belling’s attorney fees and costs. Accordingly, we affirm.

FACTS

¶ 3 Belling worked for Malcolm Drilling Company. He was injured on the job in 2005.

He successfully applied for workers’ compensation and received regular time-loss benefits until March 2011. At that point, the Department of Labor and Industries concluded that Belling could go back to work, paid him approximately $9,271.80 for a permanent partial disability, and stopped making regular time-loss payments.

¶ 4 Belling appealed, hiring a lawyer who charged him a 30 percent contingency fee. He also successfully applied for unemployment benefits. The next year, the Board of Industrial Insurance Appeals reinstated Belling’s workers’ compensation benefits and awarded him back benefits. Part of the award represented workers’ compensation benefits for days Belling was also receiving unemployment benefits. Not long after Belling’s workers’ compensation appeal was resolved, the Employment Security Department notified him that due to his victory on appeal, he had improperly received both workers’ compensation and unemployment benefits for the same period of time. The department asserted that "[t]he overpayment cannot be waived as you are at fault." Clerk’s Papers (CP) at 90. It demanded reimbursement of $22,924, which is the amount Belling received in unemployment benefits on days he was awarded workers’ compensation.

¶ 5 Belling asked the department to waive a portion of reimbursement, arguing that under the "basic principles of Mahler v. Szucs, 135 Wn.2d 398 (1998) [,] ... Employment Security should be willing to pay its share of the legal expenses" necessary to obtain the workers’ compensation award. Id. at 127. The dispute went before an administrative law judge (ALJ). The ALJ concluded Belling was not at fault¹ but that equity and good conscience did not require waiver of any part of the reimbursement. The commissioner of Employment Security adopted the ALJ’s initial order, making it the decision of the commissioner. Belling appealed to Superior Court, which largely affirmed. Both sides appealed. In a split, unpublished opinion, the Court of Appeals reinstated the commissioner’s decision requiring complete reimbursement. Belling v. Emp’t Sec. Dep’t, No. 34066-0-III, 2017 WL 4012946 (Wash. Ct. App. Sept. 12, 2017) (unpublished), http://www.courts.wa.gov/opinions/pdf/340660_unp.pdf. We granted review.

ANALYSIS

FEE SHARING

¶ 6 We must first decide whether fee sharing under the common fund doctrine generally applies when the department seeks reimbursement under chapter 50.32 RCW. The parties agree that this is a question of law we review de novo. Additionally, our review is guided by the legislative direction that the unemployment act "shall be liberally construed for the purpose of reducing involuntary unemployment and the suffering caused thereby to the minimum." RCW 50.01.010.

¶ 7 Under the American rule, parties do not share attorney fees unless an exception grounded in contract, law, or equity applies. Winters v. State Farm Mut. Auto. Ins. Co., 144 Wash.2d 869, 877, 31 P.3d 1164 (2001) (citing Bowles v. Dep’t of Ret. Sys., 121 Wash.2d 52, 70-71, 847 P.2d 440 (1993) ). One equitable exception to the American rule is the common fund doctrine. Under this doctrine, "a court is authorized to award attorney fees only when a litigant preserves or creates a common fund for the benefit of others as well as themselves." City of Sequim v. Malkasian, 157 Wash.2d 251, 271, 138 P.3d 943 (2006) (citing Bowles, 121 Wash.2d at 70-71, 847 P.2d 440 ).

¶ 8 The common fund doctrine does not apply to every situation where attorney fees may be accrued. "If the merits of the litigation fall within a statutory scheme which prohibits the award of attorney fees, or allows such an award under narrow circumstances, a party cannot enlarge those circumstances by reference to the common fund doctrine or other equitable powers of the trial court." Leischner v. Alldridge, 114 Wash.2d 753, 757, 790 P.2d 1234 (1990) (citing Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 719, 87 S.Ct. 1404, 18 L.Ed.2d 475 (1967) ). Both the unemployment compensation act and the Industrial Insurance Act contain attorney fees provisions that do not grant fees to claimants in Belling’s position. RCW 50.32.160,² .100;³ RCW 51.52.120,⁴ .130, .150.

¶ 9 We have already specifically found the common fund doctrine cannot be used to expand the attorney fee provisions in the workers’ compensation and unemployment security statutes. See Rhoad v. McLean Trucking Co., 102 Wash.2d 422, 426, 686 P.2d 483 (1984) ; Penn. Life Ins. Co. v. Dep’t of Emp’t Sec., 97 Wash.2d 412, 417-18, 645 P.2d 693 (1982). In PennsylvaniaLife , an employer challenged Employment Security’s determination that an employee was eligible for benefits. 97 Wash.2d at 413, 645 P.2d 693. The employer established that the employee had been terminated for misconduct and was thus ineligible. Id. The trial judge awarded the employer attorney fees under a statute that gave prevailing claimants attorney fees under limited circumstances. Id. at 413-14, 645 P.2d 693 (citing former RCW 50.32.160 (1971) ). The employer argued it was entitled to fees under the equitable common fund doctrine since it had protected the unemployment fund from a nonmeritorious claim. Id. at 414, 645 P.2d 693. This court disagreed, concluding that the unemployment compensation act

makes no provision for the fixing or awarding of attorney fees to employers, but protects only the employee and his beneficiaries. So the Legislature has in the case of both the Industrial Insurance Act and the unemployment compensation act amended the provisions for attorney fees to make it clear that they shall be awarded only to claimants under the statutes.

Id. at 416, 645 P.2d 693 (citation omitted) (citing Harbor Plywood Corp. v. Dep’t of Labor & Indus., 48 Wash.2d 553, 295 P.2d 310 (1956) ). Pennsylvania Life thus declined to extend the common fund doctrine to a prevailing employer’s appeal because it would have been inconsistent with the attorney fee system established by the act. See also Rhoad, 102 Wash.2d at 426, 686 P.2d 483 (applying similar principles under the former workers’ compensation arena).

¶ 10 Since these cases, there has been considerable development of our common fund doctrine jurisprudence in the context of automobile insurance policies. See Matsyuk v. State Farm Fire & Cas. Co., 173 Wash.2d 643, 649-650, 272 P.3d 802 (2012) (citing Hamm v. State Farm Mut. Auto. Ins. Co., 151 Wash.2d 303, 88 P.3d 395 (2004) ; Winters, 144 Wash.2d 869, 31 P.3d 1164 ). These cases establish that an automobile insurer that has paid first party benefits is required to pay a pro rata share of attorney fees anytime it seeks reimbursement out of a judgment or settlement with a tortfeasor. Id. Belling contends that these cases should be applied here.

¶ 11 While this is a question of first impression in this court, it is not a question of first impression in Washington appellate courts. In 2005, our Court of Appeals declined to apply the common fund doctrine to limit Employment Security’s reimbursement of unemployment benefits from a workers’ compensation award. See Delagrave v. Emp’t Sec. Dep’t, 127 Wash. App. 596, 605, 111 P.3d 879 (2005) (citing Mahler, 135 Wash.2d at 426-27, 436, 957 P.2d 632 ). The court concluded that if the legislature had wanted the department to partially waive unemployment reimbursement in such situations, it would have said so. The court noted that the statutory schema already allows for attorney fees in some circumstances:

RCW 50.32.160 provides for payment of attorney fees and costs out of the unemployment compensation administration fund only if a commissioner’s decision is reversed. A provision for attorney fees for recovery of overpayment is notably absent from this provision as well as from the overpayment provisions of the statutes. See RCW 50.20.085, .190. If the legislature had intended attorney fees to be available in overlapping benefits scenarios like the one here, the logical place to include such a provision would be within these three statutes.

Id. RCW 50.32.160 and RCW 50.20.085 have not been amended since Delagrave was published in 200...