Workers’ Compensation, Unreasonable Contest Attorney Fees, Statutory Authority to Order Claimant’s Counsel to Disgorge Award of Fees Where Employer Ultimately Prevails
The Supreme Court’s grant of allocatur states the issues as framed by petitioner:
(a.) Whether the Commonwealth Court erred when it held, without legal precedent, that a workers’ compensation claimant’s attorney must disgorge and return unreasonable contest attorney’s fees if the employer ultimately prevails?
(b.) Whether the disgorgement and return of unreasonable contest attorney’s fees when the employer ultimately prevails is better left to the legislature rather than the courts?
The Workers’ Compensation Act provides for an award to a claimant of unreasonable contest attorney fees but does not provide for a disgorgement of such fees once paid if the employer ultimately prevails on appeal. Section 440 of the Workers’ Compensation Act, 77 P.S. § 996(a) provides:
In any contested case where the insurer has contested liability in whole or in part, including contested cases involving petitions to terminate, reinstate, increase, reduce or otherwise modify compensation awards, agreements or other payment arrangements or to set aside final receipts, the employe or his dependent, as the case may be, in whose favor the matter at issue has been finally determined in whole or in part shall be awarded, in addition to the award for compensation, a reasonable sum for costs incurred for attorney’s fee, witnesses, necessary medical examination, and the value of unreimbursed lost time to attend the proceedings: Provided, That cost for attorney fees may be excluded when a reasonable basis for the contest has been established by the employer or the insurer.
In this case, Claimant was receiving total disability benefits for a work-related 1993 shoulder injury. The Employer filed a suspension petition in 2007. In 2008 a Workers Compensation Judge (WCJ) issued a decision granting Employer’s suspension petition, finding that Claimant, who was 80 years old at the time, had failed to follow through in good faith on a job referral within his physical limitations from his shoulder injury and had completely withdrawn from the workforce as a result of his age and medical conditions unrelated to his shoulder injury. The Board reversed on the ground that Employer was barred by collateral estoppel based on a 2004 WCJ decision denying an earlier suspension petition, held that Claimant was entitled to unreasonable contest attorney fees, and remanded the case to the WCJ to determine the amount of those fees. After an award of fees, and Employer’s payment because supersedeas was denied, Commonwealth Court in 2012 reversed and ruled that collateral estoppel did not bar the 2007 suspension petition because the issues were not the same as in the 2004 WCJ decision and that the Board erred in reversing the suspension of Claimant’s benefits. The Court also ruled that the Board erred in awarding unreasonable contest attorney fees because a claimant can recover attorney fees under the Workers’ Compensation Act only if he is the prevailing party. Employer thereafter petitioned for return of the unreasonable contest attorney fees. The WCJ concluded that Claimant’s counsel “may voluntarily return the fees awarded pursuant to ethical and moral principles, but he will not be ordered to do so.” The Board affirmed.
Relying on Barrett v. Workers’ Compensation Appeal Board (Sunoco, Inc.), 987 A.2d 1280 (Pa. Cmwlth. 2010), which held that where litigation costs are awarded and the employer pays them as a result of denial of a stay and the award of costs is later reversed on appeal, the employer is entitled to an order requiring the claimant’s counsel to repay the erroneously awarded costs, the Commonwealth Court majority agreed that the Employer can recover from counsel the invalid unreasonable contest attorney fees award that it was required to pay to him and that the WCJ and Board therefore erred in denying its petition for refund.
As the majority explained:
Although Barrett involved non-attorney fee litigation costs, our reasoning in Barrett is equally applicable to the unreasonable contest attorney fees here and compels the conclusion that Employer is entitled to an order requiring Counsel to refund the $14,750 that he was erroneously awarded. Every factor on which this Court based its holding in Barrett is present here. Awards of non-attorney fee litigation costs and unreasonable contest attorney fees are made under the same section of the Workers’ Compensation Act, Section 440.
In dissent, Judge Cosgrove noted that Barrett relied on dicta in Lucey v. Workmen’s Compensation Appeal Board (Vy–Cal Plastics PMA Group), 557 Pa. 272, 732 A.2d 1201 (1999) that in any event dealt with costs, not counsel fees:
The Majority takes this thin thread and stretches it beyond what Barrett even arguably suggests. If, indeed, reimbursement of costs is the norm established by Barrett, that case, built on the non-decision in Lucey, offers no support for reimbursement of attorney fees. This fact, however, does not dissuade the Majority. Instead, in a sort of reverse gymnastics, it takes Section 440, which allows for payment of both costs and attorney fees in successful unreasonable contest matters, and concludes that the opposite must also be true, i.e., that reimbursement of attorney fees may likewise be ordered in the unsuccessful unreasonable contest case. This logic is creative, but finds no harbor in the statute itself. … If the problem identified by the Majority exists, it is not for this Court to fashion a remedy, as it has, out of whole cloth, but instead is best and more properly left to the legislature.
151 A.3d at 1218-1219.