Dami Hospitality, LLC v. Indus. Claim Appeals Office of Colo.

Decision Date23 February 2017
Docket NumberCourt of Appeals No. 16CA0249
Citation457 P.3d 621
Parties DAMI HOSPITALITY, LLC, Petitioner, v. INDUSTRIAL CLAIM APPEALS OFFICE of the State of Colorado and Division of Workers' Compensation, Respondents.
CourtColorado Court of Appeals

Law Offices of Daniel T. Goodwin, Daniel T. Goodwin, Caroline R. Kert, Paige Orgel, Broomfield, Colorado, for Petitioner

No Appearance for Respondent Industrial Claim Appeals Office

Cynthia H. Coffman, Attorney General, Emmy A. Langley, Assistant Attorney General, Denver, Colorado, for Respondent Division of Workers' Compensation

Opinion by JUDGE WEBB

¶ 1 Is a fine of $841,200 imposed by the Division of Workers' Compensation (the division) on a small employer for having failed over several years to maintain workers' compensation insurance excessive under the Eighth Amendment?1 On the particular facts presented, which include a failure to perform the required fact-specific constitutional analysis, we answer this novel question "yes."

¶ 2 The employer, Dami Hospitality, LLC, appeals the fine as unconstitutional, challenging the underlying statute both facially and as applied; as contrary to other provisions of the Workers' Compensation Act of Colorado, sections 8-40-101 to 8-47-209, C.R.S. 2016 (the Act); and as a procedural due process violation.

¶ 3 We uphold the facial constitutionality of section 8-43-409, C.R.S. 2016, the statute underlying the fine. But on an as-applied basis, we conclude that because the Director of the division (Director) failed to apply the excessive fine factors adopted under the Eighth Amendment to the particular facts that Dami presented, the fine must be set aside as excessive. We reject Dami's remaining contentions.

¶ 4 Therefore, we set aside the decision of the Industrial Claim Appeals Office (Panel) affirming the Director's decision and remand the case to the Panel with directions to order the Director to reconsider imposing a fine calculated according to this opinion.

I. Background and Procedural History

¶ 5 Dami operates a motel in Denver, Colorado. For a period in 2006, Dami failed to carry workers' compensation insurance as required by section 8-43-409. It was fined approximately $1200 for that violation, paid the fine, and obtained the necessary insurance.

¶ 6 In 2014, the division notified Dami that it was again without workers' compensation insurance and had been for periods during 2006 and 2007, as well as from September 2010 through the date of the division's notice.

The Director's "Notice to Show Compliance" advised Dami that within twenty days it had to answer an attached questionnaire, had to submit documents establishing coverage, and could "request a prehearing conference on the issue of default." Dami admits that it received this notice on June 28, 2014, but denies having received a notice the division said had been sent four mon2 ths earlier. Although Dami obtained the necessary insurance by July 9, 2014, it neither submitted a response to the Notice to Show Compliance nor requested a prehearing conference.

¶ 7 Information provided by the division's coverage enforcement unit—which Dami does not contest—showed that Dami had been without coverage from August 10, 2006, through June 8, 2007, and again from September 12, 2010, through July 9, 2014. On this basis, the Director fined Dami from $250 to $400 per day, through September 18, 2006. From September 19, 2006, through June 8, 2007, and from September 12, 2010, through July 9, 2014, Dami was fined $500 per day. The Director calculated the fine based on the formula adopted by the division under section 8-43-409(1)(b)(II) in Department of Labor & Employment Rule 3-6, 7 Code Colo. Regs. 1101-3 (Rule 3-6), discussed in Part III.B below.

¶ 8 Dami's owner, Soon Pak, sent a letter to the Director captioned "Petition to Review," asking the Director to reconsider the fine. The Director treated the letter as a petition to review his findings of fact, conclusions of law, and order.

¶ 9 In the letter/petition, Ms. Pak explained that she "believed" the insurance policies she obtained for the motel had "included the required coverage." She blamed her insurance agent for the lapse in coverage, asserting that her trust "in insurance professionals to quote and secure ... competitive workmen's compensation insurance" was "obviously" misplaced. The petition also asked the Director to reduce the penalty because "$842,000 is more that [sic] my business grosses in one year.... My payroll each year is less than $50,000 per year. ... If the penalty stands as presented, I have no choice but to declare personal and business bankruptcy and go out of business."

¶ 10 In a letter that Ms. Pak's insurance agent submitted to the Director, the agent accepted responsibility for the lack of workers' compensation insurance: "I think I feel part of responsibility for this matter that I did not tell about Worker's Compensation and I will be managing my client in the future.... Actually she confused Property Insurance and Worker's Compensation." Later, Dami's counsel filed a brief in support of the petition to review. Attached to the brief was Ms. Pak's affidavit reiterating her reliance on the insurance agent.

¶ 11 In a supplemental order following Dami's petition and brief, the Director again ordered Dami to pay the fine. He found that because of the earlier fine, Dami had been aware of the need to maintain insurance and failure to do so was within its control. As for Dami's asserted inability to pay, the Director concluded that neither section 8-43-409 nor Rule 3-6(D) contains "an exclusion or exemption from incurring and paying a fine based upon a Respondent's financial inability to pay."

¶ 12 On Dami's appeal of the supplemental order, the Panel remanded the case to the Director. It held that the Director had failed to consider the factors set out in Associated Business Products v. Industrial Claim Appeals Office , 126 P.3d 323 (Colo. App. 2005), to protect against constitutionally excessive fines or penalties. The Panel summarized those factors as follows:

• the degree of reprehensibility of the defendant's misconduct;
• the disparity between the harm or potential harm suffered and the fine to be assessed; and
• the difference between the fine imposed and the penalties authorized or imposed in comparable cases.

¶ 13 Without taking additional evidence, the Director issued an order on remand. Still, the Director did not analyze the factors that Dami had presented under Associated Business Products . Instead, he concluded that because Rule 3-6 inherently incorporates these factors, no further consideration was necessary. Then for the third time, the Director ordered Dami to pay a fine of $841,200.

¶ 14 Again, Dami appealed. But this time the Panel agreed with the Director's analysis and affirmed the order on remand. The Panel's decision is now before us.

II. Was Dami Deprived of Procedural Due Process?

¶ 15 Although procedural due process is not Dami's primary argument, we begin there because if Dami is correct, the fine must be set aside and the broader constitutional issues would no longer be ripe for decision. Courts "have a duty to decide constitutional questions when necessary to dispose of the litigation before them. But they have an equally strong duty to avoid constitutional issues that need not be resolved in order to determine the rights of the parties to the case under consideration." Cty. Court v. Allen , 442 U.S. 140, 154, 99 S.Ct. 2213, 60 L.Ed.2d 777 (1979) ; see also People v. Montour , 157 P.3d 489, 503-04 (Colo. 2007) (Under "the doctrine of constitutional avoidance, ... courts have a duty to interpret a statute in a constitutional manner where the statute is susceptible to a constitutional construction."). However, we discern no due process violation.

¶ 16 On procedural due process grounds, Dami challenges the method by which it was notified that it lacked workers' compensation insurance, explaining "common sense indicates that simple notice by mail is not reasonable." Alternatively, it argues that a hearing should have been held before the fine was imposed. Neither of these assertions provides a basis for setting aside the Panel's order.

¶ 17 The "fundamental requisites of procedural due process are notice and the opportunity to be heard." Kuhndog, Inc. v. Indus. Claim Appeals Office , 207 P.3d 949, 950 (Colo. App. 2009).

¶ 18 The Director's Notice to Show Compliance, informing Dami of its "subsequent violation" of section 8-43-409 for failure to carry workers' compensation insurance, appears to have been mailed to the address the division had on file for Dami. Dami does not point to any evidence in the record that it had ever advised the division of a new mailing address.

¶ 19 More importantly, despite Dami's argument that notice was inadequate, Ms. Pak admitted in her affidavit to the Director that she had received a second notice in June 2014, just four months after the first notice of subsequent violation had been mailed. Dami does not assert that the passage of these four months created constitutional prejudice. And when a party has received actual notice of an agency's action, the party cannot claim a procedural due process violation based on an alleged defect in the method of giving notice. See Amos v. Aspen Alps 123, LLC , 2012 CO 46, ¶¶ 1, 20, 280 P.3d 1256 ("We conclude that when the parties received actual notice which afforded them an opportunity to present their objections and no prejudice resulted, we will not disturb a completed foreclosure sale."); see also Baker v. Latham Sparrowbush Assocs. , 72 F.3d 246, 254 (2d Cir. 1995) ("If a party receives actual notice that apprises it of the pendency of the action and affords an opportunity to respond, the due process clause is not offended.").

¶ 20 Dami's assertion that a hearing should have been held fares no better. In responding to the Notice to Show Compliance, Dami never asked for a prehearing conference.3 Nor did Dami request a...

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2 cases
  • People v. Timoshchuk
    • United States
    • Colorado Court of Appeals
    • November 1, 2018
    ...probationers facing revocation with a statutory right to counsel. See Dami Hosp., LLC v. Indus. Claim Appeals Office , 2017 COA 21, ¶ 15, 457 P.3d 621 (recognizing that courts should avoid constitutional issues that need not be resolved in order to decide a case) (cert granted Sept. 11, 201......
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    • United States
    • Colorado Court of Appeals
    • March 7, 2019
    ...Barber v. Ritter , 196 P.3d 238, 247 (Colo. 2008) (facial challenge); Dami Hosp., LLC v. Indus. Claim Appeals Office , 2017 COA 21, ¶ 42, 457 P.3d 621 (as-applied challenge) (cert. granted in part sub nom. Colo. Dep't of Labor & Emp't v. Dami Hosp. Sept. 11, 2017).¶ 18 As an initial matter,......

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