Flynn v. State Compensation Ins. Fund

• Court: Montana Supreme Court
• Citation: Flynn v. State Compensation Ins. Fund, 2002 MT 279, 312 Mont. 410, 60 P.3d 397 (Mont. 2002)
• Decision Date: 05 December 2002
• Docket Number: No. 01-475.,01-475.
• Parties: Robert FLYNN, Petitioner and Appellant, v. STATE COMPENSATION INSURANCE FUND, Respondent/Insurer and Respondent for Salish Kootenai College, Employer.

60 P.3d 397

312 Mont. 410

2002 MT 279

Robert FLYNN, Petitioner and Appellant, v. STATE COMPENSATION INSURANCE FUND, Respondent/Insurer and Respondent for

Salish Kootenai College, Employer.

No. 01-475.

Supreme Court of Montana.

Submitted on Briefs January 17, 2002.

Decided December 5, 2002.

For Appellant: Rex Palmer, Attorney at Law, Missoula, Montana.

For Respondent: Ann E. Clark, Special Assistant Attorney General, State Compensation Insurance Fund, Helena, Montana.

Justice TERRY N. TRIEWEILER delivered the Opinion of the Court.

¶ 1 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.

¶ 2 We address the following issues on appeal: ¶ 3 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?

¶ 4 2. Was the State Fund entitled to reduce Flynn's workers' compensation benefits to recover overpaid benefits?

FACTUAL BACKGROUND

¶ 5 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 to Flynn. Flynn has remained totally disabled since 1993 and the State Fund recently conceded that Flynn is permanently totally disabled (PTD).

¶ 6 Sometime prior to 1996, Flynn also filed a claim for social security disability (SSD) 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 $217.59, 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.

¶ 7 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.

¶ 8 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.

STANDARD OF REVIEW

¶ 9 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, ¶ 5, 296 Mont. 76, ¶ 5, 985 P.2d 741, ¶ 5.

DISCUSSION

ISSUE 1

¶ 10 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?

¶ 11 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 fund doctrine.

¶ 12 The Workers' Compensation Court rejected Flynn's attorney fee claim for three reasons. First, it cited Stahl v. Ramsey Const. Co. (1991), 248 Mont. 271, 811 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 [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 (1995), 273 Mont. 185, 202, 903 P.2d 170, 180, the Workers' Compensation Court held that "[w]here a conflict arises between the common law and a statute, the common law must yield."

¶ 13 In Stahl, the claimant incurred attorney fees to recover SSD benefits and the Social Security Administration withheld a percentage 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.

¶ 14 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, 811 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.

¶ 15 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 (2000), 193 Ill.2d 560, 251 Ill.Dec. 141, 149, 739 N.E.2d 1263, 1271. The 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 314, ¶¶ 15-18, 308 Mont. 29, ¶¶ 15-18, 38 P.3d 825, ¶¶ 15-18, we summarized the elements of the common fund doctrine as follows: 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 fund share in the cost of its creation. See Means v. Montana Power Co. (1981), 191 Mont. 395, 405, 625 P.2d 32, 38.

¶ 16 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 §§ 39-71-701(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.

¶ 17 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 § 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.

¶ 18 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

¶ 19 Was the State Fund entitled to reduce Flynn's workers' compensation benefits to recover overpaid benefits?

¶ 20 In 1993 the Legislature amended §§ 39-71-701 and -702, MCA, to authorize insurers to suspend biweekly compensation benefits to recover overpayment from ...