Florida Supreme Court Finds 2009 Work Comp Attorney Fee Changes Unconstitutional

So what Happens now? What will the Legislature do? What will the Governor do? How will Employers and Carriers React? Where will Injured Workers and their Representatives go from here?

Rafael Gonzalez, Esq., Vice President, Optum/UnitedHealth Group 

On April 28, 2016, the Supreme Court of Florida published its decision on Castellanos v. Next Door Company, et al., concluding that since the right of an injured worker to obtain a reasonable attorney’s fee has been a critical feature of the Florida workers’ compensation law, the mandatory fee schedule in section 440.34, Fla. Stat. (2009), which creates an irrebuttable presumption that precludes any consideration of whether the fee award is reasonable to compensate the attorney, is unconstitutional under both the Florida and United States Constitutions as a violation of due process. 

The 5-2 decision shocked many, not just because the court returns Florida work comp claimant attorney's fees to an hourly fee, but because of the unlikely political alliances it took to reach such a conclusion. With a majority of the court appointed by a then industry friendly Governor and therefore expected to render business oriented decisions, in an unheard of and seldom seen crossover, two justices appointed by a Republican governor joined the three justices appointed by a Democrat governor to deliver the controversial opinion. 

Justice Barbara Pariente, appointed as Justice of the Florida Supreme Court on December 10, 1997 by Democrat Governor Lawton Chiles, delivered the opinion of the court. Unexpectedly, Chief Justice Jorge Labarga, appointed as Justice of the Florida Supreme Court on January 6, 2009 by Republican Governor Charlie Christ, and Justice James Perry, appointed as Justice of the Florida Supreme Court on March 11, 2009 by Republican Governor Charlie Christ, joined Justice Peggy Quince, appointed as Justice of the Florida Supreme Court on December 10, 1998 by Democrat Governor Lawton Chiles, to concur with Justice Pariente, without an opinion. As expected, Justice Fred Lewis, appointed Justice of the Florida Supreme Court on December 7, 1998 by Democrat Governor Lawton Chiles also concurred with Justice Pariente, but with an opinion. And also as expected, Justice Charles Canady, appointed Justice of the Florida Supreme Court on September 6, 2008 by Republican Governor Charlie Christ dissented, with an opinion, and Justice Ricky Polston, appointed Justice of the Florida Supreme Court on October 1, 2008 by Republican Governor Charlie Christ also concurred with Justice Canady's dissent, but with an opinion.

Facts and Procedural History

In 2009, Marvin Castellanos suffered an injury during the course of his employment as a press break operator for Next Door Company, a manufacturer of metal doors and door frames located in Miami, Florida. Castellanos requested medical treatment, and Next Door authorized him to seek treatment at the Physician’s Health Center in Hialeah, Florida, the the health clinic designated for medical diagnoses by Next Door’s workers’ compensation insurance carrier, Amerisure Insurance Company. At the clinic, Castellanos was diagnosed with multiple contusions to his head, neck, and right shoulder. A doctor requested authorization of medically necessary treatment, including x-rays, medications, and physical therapy. 

Next Door, as the employer, and Amerisure, as Next Door’s insurance carrier (collectively, the E/C), disagreed with the doctor’s recommendations. As a result, Castellanos filed a petition for benefits, seeking compensability of the claim, as well as temporary total or partial disability benefits, along with costs and attorney’s fees. The E/C filed a response to the petition, denying the claim based on sections 440.09(4) (intentional acts) and 440.105(4)(b)9 (fraud), Florida Statutes (2009).

A final hearing was held before the Judge of Compensation Claims (JCC), in which numerous depositions, exhibits, and live testimony were submitted for consideration. In its Final Compensation Order, the JCC determined that Castellanos was entitled to be compensated by the E/C for his injuries and was therefore entitled to recover attorney’s fees and costs from the E/C. The JCC explicitly found that Castellanos’ attorney was successful in securing compensability and defeating all of the E/C’s defenses. 

Based on the JCC’s finding of compensability, Castellanos filed a motion for attorney’s fees, seeking an hourly fee of $350 for the services of his attorney. Section 440.34, however, strictly constrains an award of attorney’s fees to the claimant’s attorney, requiring the fee to be calculated in conformance with the amount of benefits obtained. Specifically, subsection (3) of section 440.34 was amended in 2009 to remove the longstanding requirement that the fee be “reasonable” and instead to provide, except for disputed medical-only claims, that the fee equal the amount provided for in subsection (1), which sets forth the following sliding scale fee schedule: "A fee, gratuity, or other consideration may not be paid for a claimant in connection with any proceedings arising under this chapter, unless approved by the judge of compensation claims or court having jurisdiction over such proceedings. Any attorney’s fee approved by a judge of compensation claims for benefits secured on behalf of a claimant must equal to 20 percent of the first $5,000 of the amount of the benefits secured, 15 percent of the next $5,000 of the amount of the benefits secured, 10 percent of the remaining amount of the benefits secured to be provided during the first 10 years after the date the claim is filed, and 5 percent of the benefits secured after 10 years. The judge of compensation claims shall not approve a compensation order, a joint stipulation for lump-sum settlement, a stipulation or agreement between a claimant and his or her attorney, or any other agreement related to benefits under this chapter which provides for an attorney’s fee in excess of the amount permitted by this section. The judge of compensation claims is not required to approve any retainer agreement between the claimant and his or her attorney. The retainer agreement as to fees and costs may not be for compensation in excess of the amount allowed under this subsection or subsection (7)." § 440.34(1), Fla. Stat.

After hearing the testimony and considering the evidence and the law, the JCC issued an order awarding fees, finding that Castellanos “ultimately prevailed in obtaining a finding of compensability, a necessary precursor to obtaining benefits.” According to the JCC, in order to obtain this result, Castellanos “had to overcome between 13 and 16 different defenses raised by the E/C throughout the course of litigation.” The JCC further found that it was “highly unlikely that Castellanos could have succeeded and obtained the favorable result he did without the assistance of capable counsel.” 

Constrained to the statutory fee schedule, however, the JCC found that Castellanos was limited to an attorney’s fee of $164.54, based on the application of the conclusive fee schedule to the actual value of benefits secured of $822.70. Nevertheless, in its order, the JCC “fully accepted the notion that ‘Lawyers can’t work for $1.30 an hour,’ ” and stated that Castellanos’ attorney “is an exceptionally skilled, highly respected practitioner who has been awarded as much as $350 to $400 an hour for his success in workers’ compensation cases.” The JCC, in addition, found that “there is no question that the 107.2 hours expended by his firm were reasonable and necessary,” and that these hours constituted an “exceedingly efficient use of time,” which was “wholly consistent with the 115.20 defense hours documented” by counsel for the E/C. 

But as an executive branch official, the JCC had no authority to address Castellanos’ claim that section 440.34, and the resulting $1.53 hourly fee, was unconstitutional. Castellanos thus appealed the JCC’s order to the First District, raising the constitutional claim. 

The First District affirmed the JCC’s decision to award “only $164.54 for 107.2 hours of legal work reasonably necessary to secure the claimant’s workers’ compensation benefits,” holding that “the statute required this result” and that the court was “bound by precedent to uphold the award, however inadequate it may be as a practical matter.” In so doing, the First District recognized that there were “important constitutional issues presented by this case that warranted the Florida Supreme Court to determine the constitutionality of the current attorney’s fee statute.”

The 2003 and 2009 Statutory Amendments to Section 440.34

With pressure from industry and then Governor Jeb Bush, the Florida Legislature in 2003 implemented changes to Florida's workers’ compensation law following the 2003 Governor’s Commission on Workers’ Compensation Reform. “Among the many changes made in that legislation to the entire workers’ compensation law, the Legislature deleted reference in the attorney’s fee provision to consideration of the reasonable fee factors; required the fee to be based on the benefits secured; and restricted the JCC’s authority to approve fee awards based only on a statutory formula, while also providing for an alternative fee of a maximum of $1,500 if the claimant successfully asserted a claim solely for medical benefits.” Ch. 2003-412, § 6, Laws of Fla. 

After several attempts by the claimant bar, in Murray, the Florida Supreme Court considered the constitutionality of the 2003 amendments to the attorney’s fee statute, which deleted historically accepted factors to be used in determining whether the fee award was reasonable. Murray involved a claimant who hired an attorney and prevailed after the employer and its insurance carrier denied workers’ compensation benefits. The JCC then calculated the claimant’s award of attorney’s fees in accordance with the statutory formula, finding that although the claimant’s counsel expended eighty hours of reasonable and necessary time on the case, the ultimate fee award was governed by the statutory formula set forth in section 440.34(1). Thus, the JCC awarded attorney’s fees in the amount of $684.84, equating to an hourly rate of only $8.11 because of the low monetary value of the benefits obtained, while the E/C paid its attorney $16,050—135 hours at $125 an hour—in the unsuccessful effort to resist paying benefits.  

After the First District affirmed the $8.11 hourly fee award for the claimant’s attorney, the Florida Supreme Court held that the statute was ambiguous—section 440.34(3) stated that the claimant was entitled to a “reasonable attorney fee,” while section 440.34(1) stated that any attorney’s fee approved by the JCC “must equal” the statutory formula. “It is obvious, that applying the formula in all cases will not result in the determination of reasonable attorney fees in all cases.” To the contrary, applying the formula will in some circumstances “result in inadequate fees,” while in other circumstances, “applying the formula will result in excessive fees.” 

Recognizing the principle of statutory construction that it will construe statutes in a manner that avoids a holding of unconstitutionality, the Court declined to consider the constitutional challenge. Instead, the Court resolved the statutory ambiguity in favor of section 440.34(3), holding that "the claimant was entitled to recover a reasonable attorney’s fee; that a reasonable attorney’s fee for a claimant was to be determined using the factors set forth in rule 4-1.5 of the Rules Regulating The Florida Bar, rather than using the statutory formula; and that reasonable attorney’s fees for claimants, when not otherwise defined in the workers’ compensation statute, are to be determined using the factors set forth in rule 4-1.5."

Following Murray, the Florida Legislature in 2009 removed any ambiguity as to its intent. Deleting the word “reasonable” in relation to attorney’s fees, the Legislature provided that a claimant is entitled to recover only “an attorney’s fee in an amount equal to the amount provided for in subsection (1) or subsection (7) from a carrier or employer.” Ch. 2009-94, § 1, Laws of Fla. Subsection (1) requires the fee to be calculated in strict conformance with the fee schedule, and subsection (7) applies solely to the $1500 flat fee for “disputed medical-only claims.” 

The Court here summarized this legislative history by indicating that “the Legislature has, thus, eliminated any consideration of reasonableness and removed any discretion from the JCC, or the judiciary on review, to alter the fee award in cases where the sliding scale based on benefits obtained results in either a clearly inadequate or a clearly excessive fee.” Confronted again with a constitutional challenge to the statute, the Court “must now determine whether the complete elimination of any ability of either the JCC or the reviewing court to deviate from the statutory formula, even when the amount of the fee is determined to be unreasonable.”

Violation of Due Process 

“Section 440.34 provides a fee schedule that must be followed in every case by the JCC in calculating and awarding attorney’s fees, based on the amount of benefits recovered by the claimant. The statute does not allow for any consideration of whether the fee is reasonable or any way for the JCC or the judiciary on review to alter the fee, even if the resulting fee is grossly inadequate— or grossly excessive—in comparison to the amount of time reasonably and necessarily expended to obtain the benefits. Stated another way, the statute establishes a conclusive irrebuttable presumption that the formula will produce an adequate fee in every case. This is clearly not true, and the inability of any injured worker to challenge the reasonableness of the fee award in his or her individual case is a facial constitutional due process issue."

The stated goal of the workers’ compensation system remains to this date the “quick and efficient delivery of disability and medical benefits to an injured worker” so as “to facilitate the worker’s return to gainful reemployment at a reasonable cost to the employer.” § 440.015, Fla. Stat. This case, and many others like it, demonstrate that "despite the stated goal, oftentimes the worker experiences delay and resistance either by the employer or the carrier. Without the likelihood of an adequate attorney’s fee award, there is little disincentive for a carrier to deny benefits or to raise multiple defenses, as was done here. This is the exact opposite of the original goal of the attorney’s fee provision."

"While the E/C’s attorney is adequately compensated for the hours reasonably expended to unsuccessfully defend the claim, as here, the claimant’s attorney’s fee may be reduced to an absurdly low amount, such as the $1.53 hourly rate awarded to the attorney for Castellanos. In effect, the elimination of any requirement that the fee be “reasonable” completely eviscerates the purpose of the attorney’s fee provision and fails to provide any penalty to the E/C for wrongfully denying or delaying benefits in contravention to the stated purpose of the statutory scheme."

"The conclusive fee schedule prevents all injured workers—whether they have small-value or high-value claims—from presenting evidence to prove that the fee is inadequate in any given case. Without the ability of the attorney to present, and the JCC to determine, the reasonableness of the fee award and to deviate where necessary, the risk is too great that the fee award will be entirely arbitrary, unjust, and grossly inadequate." The court therefore concludes that the statute violates the state and federal constitutional guarantees of due process.

The Court's Remedy Until the Legislature Acts: Statutory Revival 

Having concluded that the statute is unconstitutional, the court considered the remedy until the Legislature acts to cure the constitutional infirmity. “Florida law has long held that, when the legislature approves unconstitutional statutory language and simultaneously repeals its predecessor, then the judicial act of striking the new statutory language automatically revives the predecessor unless it, too, would be unconstitutional.” 

Accordingly, the court's holding that the conclusive fee schedule in section 440.34 is unconstitutional operates to revive the statute’s immediate predecessor. This is the statute addressed by this Court in Murray, where the court construed the statute to provide for a “reasonable” award of attorney’s fees. 

"With Murray as a guide, a JCC must allow for a claimant to present evidence to show that application of the statutory fee schedule will result in an unreasonable fee. The court emphasizes, however, that the fee schedule remains the starting point, and that the revival of the predecessor statute does not mean that claimants’ attorneys will receive a windfall. Only where the claimant can demonstrate, based on the standard this Court articulated long ago in Lee Engineering, that the fee schedule results in an unreasonable fee—such as in a case like this—will the claimant’s attorney be entitled to a fee that deviates from the fee schedule."

Justice Lewis Concurring Opinion

"Over years of operation, construction, writing and rewriting, the Florida workers’ compensation system has become increasingly complex and difficult to navigate without the assistance of one having specialized training. It is fair to say that the system once designed and intended to fairly distribute and allocate risk and economic burdens with reduced conflict and confrontation has rapidly expanded into an arena of such conflict and confusion that legal counsel is not only helpful, but it is now essential for the protection of workers. This need for representation has been well recognized as Florida’s workers’ compensation system has moved from the once quick and efficient delivery of necessary medical treatment and wages into the current maze of reduced benefits and a contentious process for the recovery of those benefits."

"Now the workers’ compensation program has emasculated the attorney fee provision to the extent that a mandatory fee schedule creates an irrebuttable presumption with regard to attorney fees that eliminates any consideration of whether the attorney fee is adequate for workers to actually obtain competent counsel in these cases. Thus, circumstances such as this case result in providing counsel attorney fees in an amount of $1.53 per hour, which is clearly unreasonable and insufficient to afford workers the ability to secure competent counsel, and the irrebuttable or conclusive presumption with regard to attorney fees violates the three-pronged analysis applicable to determine constitutionality here. This irrebuttable or conclusive presumption violates the constitutional right to due process."

Additionally, "where workers face the exclusive remedy under Florida’s workers’ compensation statutes, but are then denied the ability to secure competent counsel due to the totally unreasonable attorney fees provision, the legislation operates to unconstitutionally deny Florida workers access to our courts."

Justice Canady Dissenting Opinion

"The fee schedule in section 440.34, Florida Statutes, embodies a policy determination by the Legislature that there should be a reasonable relationship between the value of the benefits obtained in litigating a workers’ compensation claim and the amount of attorney’s fees the employer or carrier is required to pay to the claimant. This policy violates none of the constitutional provisions on which the petitioner relies."

"In reaching the conclusion that the statute violates due process, the majority fails to directly address the actual policy of the statute. Instead, the majority assumes—without any reasoned explanation—that due process requires a particular definition of “reasonableness” in the award of statutory attorney’s fees. The definition assumed by the majority categorically precludes the legislative policy requiring a reasonable relationship between the amount of a fee award and the amount of the recovery obtained by the efforts of the attorney. Certainly, this legislative policy may be subject to criticism. But there is no basis in our precedents or federal law for declaring it unconstitutional."

"Although the Legislature long ago made provision for the award of attorney’s fees to workers’ compensation claimants, this court has never held that—as the majority asserts—a reasonable attorney’s fee is the linchpin to the constitutionality of the workers’ compensation law.” And this court has never held that it is unreasonable to require that an award of attorney’s fees be commensurate with the benefits obtained. The policy adopted by the Legislature in section 440.34 may be subject to criticism, but it unquestionably has a rational basis."

"This case illustrates the rationale for the legislative policy requiring that a fee award be commensurate with the recovery obtained. Here, the value of the claim was $822.70, and the claimant sought attorney’s fees in the amount of $36,817.50—a fee nearly 45 times the amount of the recovery. Of course, an argument can be made that an award of fees in an amount so disproportionate to the recovery is necessary and appropriate to allow the effective litigation of a complex low-value claim. And a counter argument can be made that such disproportionate fee awards impose an unwarranted social cost. But the question for this Court is not which side of this policy debate has the best argument, but whether the policy adopted by the Legislature violates some constitutional requirement."

Justice Polston Dissenting Opinion

"In 2008, the Court issued an opinion interpreting the attorney’s fees provision of Florida’s workers’ compensation law as amended in 2003 to include a reasonableness requirement. See Murray v. Mariner Health, 994 So. 2d 1051 (Fla. 2008) (interpreting section 440.34, Florida Statutes (2003)). The Court in Murray determined that the plain language of the statute was ambiguous regarding reasonableness because subsection (1) did not include the term reasonable when providing for a mandatory fee schedule but subsection (3) did employ the term. Such ambiguity necessitated a judicial interpretation utilizing the rules of statutory construction. In response to this Court’s decision in Murray, the Legislature amended the statute to eliminate any ambiguity, which the Legislature is constitutionally authorized to do. Specifically, in 2009, the Legislature eliminated all references to reasonableness, rendering moot this Court’s 2008 interpretation of the provision as including a reasonableness requirement. See ch. 2009-94, § 1, Laws of Fla."

"With today’s decision, the majority reinstates its prior 2008 holding by turning facial constitutional review completely on its head and rewriting the 2009 statute. To be clear, I am not saying that a constitutional challenge to section 440.34, Florida Statutes (2009), could never succeed. In fact, I would not foreclose the possibility of a successful as-applied constitutional challenge to the attorney’s fees provision based upon access to courts, depending upon the particular facts of the case involved. However, as acknowledged during oral argument, the petitioner did not raise any as-applied challenge to the statute in this Court, even given what would certainly seem to be the rather egregious facts of his case. Instead, the petitioner raised a facial challenge that lacks any merit under our precedent."

"The majority reaches a holding, not by applying our precedent regarding facial challenges, but by ignoring it altogether and never even citing the well-established standard. The majority just declares that the attorney’s fees provision in Florida’s workers’ compensation law includes an irrebuttable presumption of reasonableness, and then it holds that this presumption is a violation of procedural due process under both the United States and Florida constitutions. But the 2009 provision does not mention reasonableness at all and, therefore, does not include any such presumption, irrebuttable or otherwise. Section 440.34 as plainly written prescribes a mandatory schedule for prevailing party attorney’s fees. It never states that those attorney’s fees have to be or should be considered reasonable. In fact, it was specifically amended post- Murray to eliminate the term reasonable, which eliminates the ability of this Court to say that the statute includes anything about reasonableness. And because the statute does not include any presumption of reasonableness (let alone a conclusive presumption), the majority’s analysis of the constitutionality of that non-existent presumption is erroneous."

"The majority’s decision turns the Court’s well-established precedent regarding facial challenges on its head and accomplishes by the backdoor what it could not do by the front door. The majority is really deciding that reasonable attorney’s fees are constitutionally required. But by rewriting the 2009 statute to include a conclusive presumption, the majority avoids the fact that the state and federal due process clauses do not require Florida’s workers’ compensation scheme to include reasonable prevailing party attorney’s fees. The majority also invalidates a statute that might sometimes, but not all the time, be applied in a manner that denies reasonable attorney’s fees. However, this Court’s precedent regarding facial challenges requires that such a statute be upheld."

Conclusion

The Supreme Court of Florida was clear when it concluded that "the right of an injured worker to recover a reasonable prevailing party attorney’s fee has been a key feature of the state’s workers’ compensation law since 1941. Through the 2009 enactment of a mandatory fee schedule, however, the Legislature has created an irrebuttable presumption that every fee calculated in accordance with the fee schedule will be reasonable to compensate the attorney for his or her services. The $1.53 hourly rate in this case clearly demonstrates that not to be true." Florida is therefore back to its pre-2009 law when awarding a prevailing claimant attorney's fee.

This means that "with Murray as a guide, a JCC must allow for a claimant to present evidence to show that application of the statutory fee schedule will result in an unreasonable fee." The court emphasizes, however, that the fee schedule remains the starting point, and that the revival of the predecessor statute does not mean that claimants’ attorneys will receive a windfall. "Only where the claimant can demonstrate, based on the standards articulated in Lee Engineering, that the fee schedule results in an unreasonable fee, will the claimant’s attorney be entitled to a fee that deviates from the fee schedule."

So what happens now? With NCCI recently announcing an anticipated 15% rate increase due to the court's opinion, and the potential for even higher rate increase due to the overwhelming number of cases still in the system that have not paid a premium for such potential risk or liability, are we looking at history repeating itself? Will we see rate increases that begin to effect business? Or that keep insurers from underwriting work comp coverage in Florida? We have seen it before haven't we? We have been through it more than once in Florida.

What will the Florida Legislature do? With both chambers controlled by business friendly Republicans, will it wait until employers and rates are out of control? Or will it act early, proactively  looking for a solution? If so, where will they go? What is the answer? Is there any formula, any scheme, anything short of hourly fees which will satisfy the claimant attorney bar or the Florida Supreme Court? Are there other state or federal provisions out there that might help, that might assist in finding a solution?

What will Florida's current Governor do? What will those contemplating a run for Governor in 2018 do? Will they let the Legislature be the only voice in finding a solution? Or will they engage the insurance industry, Florida's businesses, trial bar, medical community, and injured workers to come up with a solution that makes sense for all stakeholders?

And what will injured workers and their representatives do? Now that claimant attorneys are assured a reasonable fee, will they take on more post 2009 cases and begin to file and litigate old claims lingering over the last decade? Will we see a rise in small valued cases representation? If so, will we see a return to huge hourly attorney fee awards? Will this be the rise of a once thought dead practice of law back to prominence?

As has been the case with Florida's workers compensation law for the last 40 years, changes are coming again, so stay tuned!

About Rafael Gonzalez

Rafael Gonzalez, Esq. is Vice President of Strategic Solutions at Optum in Tampa, FL. A part of the insurance, medical, and disability industry since 1983, he has served as a thought leader on all aspects of liability, workers compensation, social security, Medicare, and Medicaid compliance since 1990. He speaks and writes on mandatory insurer reporting, conditional payment resolution, set aside allocations, CMS approval, and MSA and SNT professional administration, as well as the interplay and effect of these processes and systems and the Affordable Care Act throughout the country. Rafael can be reached at [email protected] or 813.967.7598.