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Rebooting California’s Workers’ Compensation Lien Process

Rebooting California’s Workers’ Compensation Lien Process

The Story of SB863’s Legacy-Lien Activation Fee

By Lauren J. Moniz, Esq.

A recent Ninth Circuit panel decision has put some lien claimants between a rock and a hard place; while at the same time, the decision upholds the intention of the California Legislature to rid of frivolous and fraudulent liens in order to reboot the California Workers’ Compensation lien process. In a three-judge panel decision, the Ninth Circuit upheld the requirements laid out by SB863, that lien claimants with “pending” liens, those filed before January 1, 2013, must pay a $100.00 activation fee by January 1, 2014 to keep legacy liens alive and required a $150 filing fee for all liens filed on or after January 1, 2013. At first blush, the holding doesn’t seem controversial; however, the complexities of the decision are revealed by the many lien claimants who did not pay the activation fee by January 1, 2014 because the Circuit Court issued an injunction based on the plaintiff’s claim. In response to the injunction, the Department of Industrial Relations moved to not enforce the activation fee requirement. Those lien claimant’s who did not activate the lien before the January 1, 2014 deadline now face the harsh reality that they may not recover as the statute technically directs that the lien is “dismissed by operation of law.” But is this necessarily a bad thing? For defendants, no; for legitimate lien claimants that filed the timely activation fee, no; but for the hundreds to thousands of questionable and possibly fraudulent liens for which no activation fee was filed, this may be what was needed to clean out “zombie liens” and reboot the California workers’ compensation lien process.


Signed into law in 2012, California passed Senate Bill 863 to combat an acute “lien crisis” in the state’s workers’ compensation system. This was an effort to clear the backlog of liens (up to 800,000 in the Los Angeles Office of Workers’ Compensation alone). The requirement helps to facilitate the settlement of meritorious liens and attempts to prevent frivolous liens which are left pending for years and which employers end up paying just to close the case.


This law was challenged by medical providers in Angelotti Chiropractic et al. vs. Baker et al.; the plaintiffs argued that the activation fee is unconstitutional and U.S. District Judge George Wu issued an injunction under the equal protection clause until the case was litigated. The plaintiff’s claim challenged the “activation fee” portion of the statute (not the $150 filing fee); thus the injunction did not concern the filing fees required for liens filed after January 1, 2013. The California Department of Industrial Relations then placed notice on their webpage that “[t]he fee for filing liens remains in effect. Only the lien activation fee is affected by U.S. Judge George H. Wu’s ruling…Unless the preliminary injunction is reversed, the Jan. 1, 2014 deadline to pay activation fees will not be enforced.”


The Ninth Circuit, on Monday June 29, 2015, not only vacated the injunction, but it also made a determination on the merits and dismissed the equal protection clause claim entirely. Some speculated the court would remand the case back to Judge Wu to make a ruling on the merits; however, it seems the Ninth Circuit felt strongly enough on the issue to make its own ruling. The three-judge panel of the Ninth Circuit found that the Legislature satisfied its rational interest in clearing the backlog by imposing the activation fee on entities it believes are responsible for that backlog. In fact, the panel opined that: “[t]he lien activation fee here is more akin to filing fees in conventional litigation scenarios, in which the Supreme Court has rejected due process challenges,” Justice Jacqueline Nguyen wrote. Moreover, even if the lien was assumed to be analogous to a tax, “its retroactive effect does not violate due process because its retroactivity is justified by a rational legislative purpose,” the opinion states. Moreover, the panel concluded that the District Court abused its discretion in finding the existence of a “serious question” of Equal Protection Clause violation and issuing an injunction. Accordingly, the 9th Circuit vacated the preliminary injunction.


You may recall that the legislation required that medical providers who had filed liens prior to January 1, 2013 must pay the activation fee by January 1, 2014 or risk their lien being dismissed. Pursuant to the injunction issued by Judge Wu, activation fees were no longer accepted effective November 19, 2013. Therefore, now that the Ninth Circuit has dismissed the constitutional challenge to SB863 and vacated the injunction the question arises: what will happen to the lien claimants that did not pay the activation fee before the January 1, 2014 deadline? Moreover, should we even be concerned for the lien claimants that didn’t act in an abundance of caution? Arguably, they are the ones that necessitated the need for this legislation anyway.


To understand what is really happening, we need to go back to the legislation itself; back to the intent behind the legislation and the seriousness of the lien problem in the California Workers’ Compensation system. In reviewing the Assembly floor analysis, we can see that the legislature was well aware of the problem: “[t]he current lien system in workers’ compensation is out of control. There is no effective statute of limitations…in addition, the method of resolution requires formal litigation in an already overcrowded workers’ compensation court system. There are presently hundreds of thousands of backlogged liens, possibly in excess of a million, and many of these are related to long-since closed cases.”


To combat the frivolous filing practices, the legislature developed the activation fee to provide disincentive for lien claimants to file meritless liens. This included the practice of filing liens, after an employer has already paid the bill at the fee schedule rate, for the “remaining” bill amount, usually just to receive some nuisance value settlement. This included an activation fee for pending liens, again to provide disincentive to file frivolous liens and to hopefully weed out some of the legacy liens left from workers’ compensation cases decades old and closed.


However, in that the statute was never really enforced by the WCAB because of the injunction, the question of whether these liens should be dismissed by operation of law pursuant to SB863 remained unknown until recently. On November 2, 2015 the parties submitted a Joint Status report before Judge Wu; the parties stipulated, in accordance with the Ninth Circuit’s ruling and pursuant to the mandate rule, that the injunction previously issued by Judge Wu be vacated. The parties also attempted to address the issue of: what happens now?


The parties agreed that the Ninth Circuit did not address the issue of what to do since the statutory deadline had passed but argued that in accordance with United States v. Kellington, 217 F.3d 1084, 1092-95 (9th Cir. 2000), allowing some timeframe extension would not be inconsistent with the mandate rule. Under Kellington, the mandate rule does not preclude a district court from considering matters not expressly disposed of by the Court of Appeals’ decision, even if the decision does not state that the action is “remanded” for further proceedings.


The parties proposed an extension until the end of the year “in order to ensure that they have sufficient time to reactivate the payment systems and to address any technical problems that may arise.” Apparently the prior electronic system could not withstand the high volume of activation fee payments, often resulting in a crashing of the system.

The court gave lien claimants until December 31, 2015 at midnight to pay any lingering lien activation fees or the lien is dismissed by operation of law. As far as the payment system glitches—the defendant’s were given until 8am on November 9, 2015 to have re-established the electronic system for payment of fees. In anticipation of glitches, the Judge’s order allows an extension of one calendar day past the December 31, 2015 deadline for each day the re-instated system is “non-operational.”   This extension does however require the parties confer and submit a stipulation documenting the extension. Any inactivated liens thereafter will be dismissed by operation of law.


These final actions represent the culmination of nearly two and a half years of litigation. The good news is that, after it all, the legislature’s intention will ultimately be carried out—those liens not activated will be dismissed and the workers’ compensation system will be relieved of many legacy liens which have lurked in the shadows for years.




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