Barri v. WCAB ( 2018 )

Filed 9/21/18; pub. order (see end of opn.)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
MICHAEL E. BARRI et al.,
Petitioners,
v. G054838
THE WORKERS’ COMPENSATION
APPEALS BOARD, OPINION
Respondent.
Original proceedings; petition for writ of mandate. The petition is denied.
Bartlit Beck Herman Palenchar & Scott, Glen E. Summers and Alison G.
Wheeler; Silverman & Milligan and Stephen A. Silverman for Petitioners.
Christopher Jagard, Chief Counsel, Department of Industrial Relations
Office of the Director, Legal Unit, and Kim E. Card for Respondent.
Michael E. Barri (Barri), Tristar Medical Group (Tristar), and Coalition for
Sensible Workers’ Compensation Reform (CSWCR) petitioned this court pursuant to
Labor Code section 5955 (all further statutory references are to the Labor Code, unless
otherwise indicated). They seek a peremptory or alternative writ of mandate, prohibition,
or other appropriate relief directing the Workers’ Compensation Appeals Board
1
(WCAB) to perform its duties and adjudicate Tristar’s lien claims and not enforce
certain unconstitutional provisions contained in newly enacted anti-fraud legislation.
(§§ 4615 & 139.21.)
In 2016, the Legislature created two new statutes to address a financial
crisis plaguing the workers’ compensation system, however, the remedy came at a
significant cost to all participating medical providers and related entities. Specifically,
the new anti-fraud scheme cast a very broad net to halt all proceedings relating to any
workers’ compensation liens filed by criminally charged medical providers (charged
providers), as well as any entities “controlled” by the charged provider (noncharged
entities). The Legislature created this new scheme because existing laws permitted
charged providers to collect on liens while defending their criminal cases, allowing
continued funding of fraudulent practices. Pursuant to these two new statutes, the
Government gained authority to automatically stay liens filed by charged providers and
noncharged entities, without considering if the liens were actually tainted by the alleged
illegal misconduct. (§ 4615.) As a result, untainted liens may be stayed (and go unpaid)
for a lengthy stretch of time because, in addition to the period required for completion of
the criminal case, the statute provides for two post-conviction evidentiary hearings. In
the first hearing, the administrative director decides whether to suspend the convicted
provider from further participation in the workers’ compensation system. (§ 139.21,
1
In this opinion, we will refer to the WCAB, represented by the Department
of Industrial Relations (DIR), Office of the Director, Legal Unit, as the Government
(unless the context requires otherwise).
2
subd. (b).) Following this hearing, the “special lien proceeding” attorney identifies and
gathers liens to be adjudicated together by a workers compensation judge (WCJ) in a
consolidated “special lien proceeding.” (§ 139.21, subd. (e)(2).) In this second hearing,
the lienholder has the evidentiary burden to rebut the statutorily mandated presumption
the consolidated liens are all tainted by the misconduct and should not be paid.
(§ 139.21, subd. (g).)
2
In their petition, Barri, Tristar, and CSWCR maintain these statutory
provisions go too far and are forcing many legitimate lien providers to stop treating
injured workers because the process has become too onerous, expensive, and financially
risky. They maintain the creation of a “significantly delayed post deprivation hearing,”
the over-inclusive application to untainted liens, and the Government’s failure to provide
adequate notice to noncharged entities, has effectively dismantled the safety net in place
for injured workers. They suggest the true legislative purpose of the statutes goes beyond
fraud prevention and serves the district attorney’s desire to financially cripple criminally
charged lien claimants, hampering their ability to adequately defend themselves at trial.
Petitioners point out a group of medical providers are currently litigating similar
contentions in the United States District Court, Central District of California. We grant
their request to take judicial notice of documents, declarations, and orders filed in
Vanguard Medical Management Billing, Inc. v. Baker, No. EDCV 17–CV–965–
GW(DTBx) (C.D.Cal. 2017) (Vanguard). (Evid. Code, § 452, subd. (e)(1) [judicial
notice of any record of “any court of record of the United States”].)
2
Barri has an ownership interest in Tristar, and CSWCR is a nonprofit
organization claiming to have an interest in protecting the legal rights and interests of
workers compensation providers (such as Barri and Tristar). The petitioners will be
referred to collectively and in the singular as “Barri” (unless the context requires
otherwise).
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It should not be overlooked that much has transpired since Barri’s original
petition was filed in April 2017. Some of these developments have changed the nature of
the arguments and are worth noting. Specifically, the following events have taken place:
(1) In September 2017, our Governor signed additional legislation to clarify
and close some loopholes found in sections 4615 and 139.21. This court requested, and
the parties submitted, additional briefing regarding the effect, if any, of this clean-up
legislation.
(2) In December 2017, Judge George H. Wu issued a preliminary
injunction in the Vanguard case, concluding the lien stay provision suffered from two
procedural due process problems despite the recent legislative amendments. (Vanguard,
supra, (C.D.Cal. Dec. 22, 2017) [nonpub. ord.].)
(3) Soon thereafter, the Government modified its website page to notify not
only charged providers, but also noncharged entities that had workers’ compensation
liens “flagg[ed]” and were subject to the section 4615 automatic stay.
( (as of Aug. 28, 2018).) Additionally, WCJs
started scheduling trial/hearings to give lien claimants a more timely opportunity to
litigate limited issues regarding the application of section 4615, such as cases of
misidentification or mistaken flagging due to lack of the necessary degree of control by
the charged provider. Lien claimants are currently not allowed to adjudicate the propriety
of the underlying criminal charges or if a lien is tainted by misconduct.
(4) The Department of Industrial Relations Anti-Fraud Unit (AFU), formed
at the end of 2016, obtained a new Chief of the Office of the Director, who implemented
new procedures at the end of 2017. The AFU now receives notice from WCJs of
scheduled lien hearings/trials and its staff may give the WCJs documentation supporting
the AFU’s “flagging” decision.
(5) Finally, in response to this court’s request for additional information,
the parties submitted multiple declarations and documents regarding the Government’s
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procedural changes, current hardships faced by lien claimants, the status of several lien
hearings in other cases, and recent developments in the Vanguard case.
In light of all of the above, we have determined some of Barri’s
constitutional challenges have been rendered moot. Other new evidence decisively
defeats his “as applied” constitutional challenges. Having the benefit of a more complete
picture of the issues facing claimants wishing to collect on stayed and untainted liens, it
appears the Government has been slow to implement procedures and protocols. While
the new system is far from perfect, it cannot be said sections 4615 and 139.21 are
unconstitutional. We deny the petition.
INTRODUCTION
The instant writ petition is an original proceeding in this court. Under
section 5955, “[n]o court of this state, except the Supreme Court and the courts of appeal
to the extent herein specified, has jurisdiction to review, reverse, correct, or annul any
order, rule, decision, or award of the [WCAB], or to suspend or delay the operation or
execution thereof, or to restrain, enjoin, or interfere with the appeals board in the
performance of its duties but a writ of mandate shall lie from the Supreme Court or a
court of appeal in all proper cases.” (See also Greener v. Workers’ Comp. Appeals Bd.
(1993) 6 Cal. 4th 1028, 1042-1044 [superior court lacks subject matter jurisdiction over
action challenging constitutionality of workers’ compensation statute].) “‘In restricting
any interference with the [WCAB’s] decisions or orders to proceedings in the appellate
courts, the Legislature has carried out the declared policy of the constitutional provision
that the [WCAB] be unencumbered by any but proceedings in the appellate courts.’
[Citations.]” (Abraham v. Workers’ Comp. Appeals Bd. (2003) 113 Cal. App. 4th 1082,
1088.) Thus, only this court or the Supreme Court has jurisdiction to review
constitutional challenges to a WCAB decision or process.
In these original writ proceedings, there is no procedural history directly
underlying this action and our factual record is limited to documents and declarations
5
provided by the parties. In considering the issues, we have reviewed all relevant
evidence contemplated by the issues, including facts not existing when the petition was
filed. (43 Cal.Jur.3d (2018) Mandamus and Prohibition, § 60, fn. omitted.) “[This] court
may properly receive evidence of matters such as might render the litigation moot or the
sought writ useless.” (Ibid.) We have exercised our discretion in these proceedings and
accepted as true the facts disclosed in the parties’ numerous declarations, to the extent the
declarants describe admissible evidence (not hearsay or speculative opinions) and facts
not contradicted by other credible evidence. (See Bruce v. Gregory (1967) 65 Cal. 2d
666, 670-671.)
In addition, both parties have asked this court to take judicial notice of
numerous court documents relating to other workers’ compensation cases, statutory
history, and other related documents. We grant these requests for judicial notice, and on
our own motion, we take judicial notice of the most recent version of the Government’s
website listing liens subject to a section 4615 stay.
( (as of Aug. 28, 2018).) (Evid. Code, §§ 452
3
& 459.)
There are well-settled limits to our use of judicially noticed documents, but
the parties’ briefing indicates some confusion about these rules. “[W]hile courts are free
to take judicial notice of the existence of each document in a court file, including the truth
of results reached, they may not take judicial notice of the truth of hearsay statements in
decisions and court files. [Citation.]” (Lockley v. Law Office of Cantrell, Green, Pekich,
Cruz & McCort (2001) 91 Cal. App. 4th 875, 882, second italics added.) It is improper to
rely on judicially noticed documents to prove disputed facts because judicial notice, by
definition, applies solely to undisputed facts. “[O]nly where the order or judgment
3
Requests for judicial notice dated April 14, 2017, June 28, 2017, July 19,
2017, October 10, 2017, January 10, 2018, and March 26, 2018, and August 1, 2018, are
granted.
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establishes a fact for purposes of . . . res judicata or collateral estoppel, would the fact so
determined be a proper subject of judicial notice.” (Kilroy v. State (2004) 119
Cal. App. 4th 140, 147; see also Rodgers v. Sargent Controls & Aerospace (2006) 136
Cal. App. 4th 82, 90 [and cases cited therein].) “The hearsay rule applies to statements
contained in judicially noticed documents, and precludes consideration of those
statements for their truth unless an independent hearsay exception exists. [Citation.]”
(North Beverly Park Homeowners Assn. v. Bisno (2007) 147 Cal. App. 4th 762, 778.)
Accordingly, with respect to the Vanguard case’s rulings, “Judicial notice
is properly taken of the existence of a factual finding . . . [by Judge Wu], but not of the
truth of that finding. [Citations.] ‘A court may take judicial notice of [another] court’s
action, but may not use it to prove the truth of the facts found and recited. [Citations.]’
[Citation.] As our Supreme Court explained, judicial notice of findings of fact does not
mean that those findings of fact are true; it means only that those findings of fact were
made. [Citation.] ‘“[N]either a finding of fact made after a contested adversary hearing
nor a finding of fact made after any other type of hearing can be indisputably deemed to
have been a correct finding . . . .”’ [Citation.]” (Steed v. Department of Consumer
Affairs (2012) 204 Cal. App. 4th 112, 120-121.)
WORKERS’ COMPENSATION ANTI-FRAUD LEGISLATION
In their briefing, the parties provided a detailed overview of the California
workers’ compensation system, typical lien processing, the misuse of liens prompting
new anti-fraud legislation, the key provisions, and the slow evolution of procedures to
implement the new provisions. These concepts are critical to understanding and
resolving the issues presented in the petition, and therefore, our discussion starts with a
review of this background information.
I. Brief Overview of Workers’ Compensation System
“Article XIV, section 4 of the California Constitution gives the Legislature
‘plenary power . . . to create, and enforce a complete system of workers’ compensation.’
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Pursuant to this authority, the Legislature enacted the WCA—a comprehensive statutory
scheme governing compensation given to California employees for injuries incurred in
the course and scope of their employment. (§ 3201 et seq.)” (Charles J. Vacanti, M.D.,
Inc. v. State Comp. Ins. Fund (2001) 24 Cal. 4th 800, 810 (Vacanti).)
“Under this statutory scheme, an employee injured in the workplace may
request workers’ compensation benefits by delivering a claim form to the employer
within 30 days of the injury. (See §§ 5400, 5401.) Benefits include compensation for
medical treatment and other services ‘reasonably required to cure or relieve [the
employee] from the effects of the injury.’ (§ 4600; see also § 3207.) The employee may
also obtain compensation for medical-legal evaluations necessary to establish his or her
entitlement to benefits. (§ 4621.) If the employer’s workers’ compensation insurer
accepts coverage, then the insurer substitutes for the employer and assumes liability for
benefits owed to the employee under the WCA. (§§ 3755, 3757.)” (Vacanti, supra, 24
Cal.4th at p. 810.)
“The underlying premise behind this statutorily created system of workers’
compensation is the ‘“compensation bargain.”’ [Citation.] Pursuant to this presumed
bargain, ‘the employer assumes liability for industrial personal injury or death without
regard to fault in exchange for limitations on the amount of that liability. The employee
is afforded relatively swift and certain payment of benefits to cure or relieve the effects of
industrial injury without having to prove fault but, in exchange, gives up the wider range
of damages potentially available in tort.’ [Citation.]” (Vacanti, supra, 24 Cal.4th at p.
811.)
II. The Nature of Workers’ Compensation Liens
“An employer or its workers’ compensation insurer may choose to provide
medical care to workers through the employer’s Medical Provider Network (“MPN”),
[citation], its Health Care Organization (“HCO”), [citation], or neither of these. . . . [¶] In
certain cases, an employer or its insurer might decline to provide medical treatment to an
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injured employee on the grounds that an injury is not work-related or the treatment is not
medically necessary. An injured worker may then seek medical treatment on his or her
own, and, if the injury is later deemed work-related and the treatment medically
necessary, the employer is liable for the ‘reasonable expense’ incurred in providing
treatment, which may include ancillary services such as an interpreter to facilitate
treatment. [Citations.] An employer also may be liable for ‘medical-legal expenses’
necessary ‘for the purpose of proving or disproving a contested claim’ for workers’
compensation benefits, such as diagnostic tests, lab fees, and medical opinions.
[Citation.]” (Angelotti Chiropractic, Inc. v. Baker (9th Cir. 2015) 791 F.3d 1075, 1078
(Angelotti).)
“A provider of services—whether for medical treatment, ancillary services,
or medical-legal services—may not seek payment directly from the injured worker.
[Citation.] Nor may a provider seek payment through the filing of a civil action against
the employer or its insurer. [Citation.] Instead, these providers may seek compensation
by filing a lien in the injured employee’s workers’ compensation case. [Citation.] The
filing of a lien entitles a provider to participate in the workers’ compensation proceeding
in order to protect its interests. [Citation.]” (Angelotti, supra, 791 F.3d at p. 1078, italics
added.)
“Whether a provider of medical or ancillary services obtains payment on its
lien depends on the result reached in the underlying case. These providers are entitled to
payment of their liens if the injured worker establishes that the injury was work-related
and that the medical treatment provided was ‘reasonably required to cure or relieve the
injured worker from the effects of his or her injury.’ [Citations.]” [¶] Providers of
medical-legal services must demonstrate that the expense was ‘reasonably, actually, and
necessarily incurred,’ [citation], ‘for the purpose of proving or disproving a contested’
workers’ compensation claim, [citations]. Medical-legal lien claimants may still obtain
payment even if the injured worker does not prevail in the underlying workers’
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compensation proceeding, provided that the medical-legal expenses are ‘credible and
valid.’ [Citation.]” (Angelotti, supra, 791 F.3d at p. 1079.)
“A medical provider whose bill is contested or otherwise unpaid [may] file
a lien claim for the costs of his or her services directly with the WCAB. [Citation.] The
filing of a lien claim renders the medical provider a party in interest to the WCAB
proceedings and endows the provider with ‘full due process rights, including an
opportunity to be heard.’ [Citation.] ‘Because injured workers and their employers are
often ready to resolve the worker’s claim for indemnity before resolution of claims by
lien claimants, the law grants a lien claimant an independent right to prove its claims in a
separate proceeding. (§ 4903.4.)’ [Citation.] A lien claimant also may initiate an action
if the injured worker does not pursue his or her own claim. [Citations.]” (Chorn v.
Workers’ Comp. Appeals Bd. (2016) 245 Cal. App. 4th 1370, 1377 (Chorn), italics added.)
In summary, a workers’ compensation lien represents a mere contingent
expectancy in a payment due to the many hurdles a lien claimant must overcome. The
claimant must comply with many procedural requirements. There are limitation periods,
filing fees, required forms, and supporting materials. (See e.g., §§ 4903.05, 4903.5, &
4903.6.) Additionally, the lien will not be paid unless the claimant successfully proves
several necessary facts. (§§ 3300, 3351-3352, & 3600) These statutory conditions
require proof the injury arose “out of and in the course of the employment” and was
“proximately caused by the employment, either with or without negligence.” (§ 3600,
subd. (a)(2) & (3).) It must also be established the medical treatment was authorized,
reasonable, and necessary. (§ 4600.)
III. General Processing of Liens
One declaration submitted by the Government, aptly provides a summary
description of how the lien system operates “in practice.” Barri does not dispute any of
the following information provided by Paige S. Levy, Chief Judge of the California
Division of Workers’ Compensation (DWC), which is a division of the DIR. As Chief
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Judge, she oversees more than 160 WCJs handling cases within the DWC’s 24 District
offices.
With respect to the issue of how lien claims are typically processed, Judge
Levy provided the following information: “Once a lien claimant files a lien in a case,
that person or entity becomes a lien claimant “of record” and is listed on the “Official
Address Record” (“OAR”) for the case. The lien claimant is then entitled to service of all
subsequent pleadings and orders in the case. [Citation.] Although listed on the OAR, a
lien claimant is technically not a “party” to a workers’ compensation case until the
underlying case in chief, between the injured worker and the employer/insurer, has either
been resolved or abandoned by the applicant. [Citation.]”
Judge Levy explained an injured worker’s claim can be resolved by (1) a
“‘compromise and release’ settlement, which is a lump sum settlement that usually does
not include any future liability . . . for medical treatment,” (2) “‘stipulations with request
for an award’” which is a different kind of settlement requiring the payment of future
medical treatment, or (3) a “‘Findings and Award,’” which is a ruling by a WCJ in the
worker’s favor. Judge Levy indicated settlements/awards address outstanding lien claims
“in some manner.” She said some liens (EDD payments or for attorney fees) may be
resolved in the settlement terms. “In general, however, the system is structured such that
medical treatment and related liens are resolved after the underlying case is resolved, in
lien conferences and lien trials that occur later. Thus, typically, medical treatment liens
are addressed in settlements and awards in the form of a specification that the
employer/insurer agrees to pay, adjust, or resolve all outstanding liens.”
Judge Levy stated lien claimants request an appearance before a WCJ by
filing a form called a “‘Declaration of Readiness to Proceed’” (DOR). “When a DOR is
filed, and unless a timely objection is received, a calendar clerk will automatically set the
case for hearing before a [WCJ] and notice will be sent to all parties. Depending on what
[was] indicated in the DOR, the case will be set for a status conference, a lien conference,
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an expedited hearing, a mandatory settlement conference, etc. Lien claimants are not
authorized to file a DOR requesting a lien conference until they are a ‘party,’ i.e., until
the underlying case has resolved. [WCJs] are authorized to set a lien conference at any
time on their own motion. (Cal. Code of Regs., tit. 8, § 10770.1, subd. (a).)”
The second way to request a hearing before a WCJ is to file a petition.
(Cal. Code Regs., tit. 8, § 10450.) Judge Levy explained, “A [p]etition is a ‘request for
action’ by the [WCJ] (i.e., similar to a motion) which indicates the type of relief
requested; other parties have the opportunity to file ‘Answers’ (oppositions) to the
[p]etition. [Citation.] Petitions are not automatically set for hearing, but a [p]etition filed
with a DOR would result in the case being set for a conference at which the parties could
argue the issues presented in the [p]etition. Like the DOR process, a [p]etition can be
filed on any kind of issue. There is no bar on lien claimants who are not yet technically
4
parties from filing a [p]etition. [Citation.]”
Judge Levy offered the following summary of how the “system operates in
practice.” Following a settlement/award in the worker’s case, “one or more lien
claimants will file a [DOR] requesting [the WCJ to] set the case for a ‘lien conference.’
At the lien conference, the defendant/insurer and the lien claimants will attempt to
resolve outstanding lien claims. If the parties cannot settle all of the outstanding liens,
and based on the agreement of the parties or the judge’s decision as to how to proceed,
the [WCJ] will either take the case ‘off calendar,’ continue the case to a future lien
conference, or set the case for a lien trial. It is very common in workers’ compensation
cases, and has been for many years, for medical treatment liens to be resolved after the
case in chief, and often substantially after the underlying case is resolved. In my
4
Following a conference/hearing, the WCJ issues “minutes of hearing”
(MOH) and this ruling may be appealed to the WCAB “either by way of a Petition for
Removal, which is used if the challenged order is not a final order, or by way of a
Petition for Reconsideration, which is used to appeal from a final order or decision.
[Citation.]”
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experience as both an attorney within the system and in my years as a judge, I observed
that it was not unusual for medical treatment liens to be heard years after (even up to 10
years after) the settlement in the underlying case.”
IV. Anti-fraud Legislation
On the final two days of the 2016 legislative session, the Legislature
enacted Assembly Bill No. 1244 (AB 1244) and Senate Bill No. 1160 (SB 1160)
(respectively §§ 139.21 & 4615 [the lien stay provision]) to address the problem of
fraudulent medical treatment providers collecting payment on their liens. As aptly
explained in the uncodified statement of legislative findings and declarations, contained
in section 16 of SB 1160:
“(b) Despite prior legislative action to reform the lien filing and recovery
process . . . including Senate Bill [No.] 863 in 2012, there continues to be abuse of the
lien process . . . by some providers of medical treatment and other medical-legal services
who have engaged in fraud or other criminal conduct within the workers compensation
system, or who have engaged in medical billing fraud, insurance fraud, or fraud against
the federal Medicare or Medi-Cal systems.
“(c) Notwithstanding fraudulent and criminal conduct by some providers
of medical treatment or other medical-legal services, those providers have continued to
file and to collect on liens . . . while criminal charges alleging fraud within the workers’
compensation system or medical billing or insurance fraud or fraud within the federal
Medicare or Medi-Cal systems are pending against those providers.
“(d) The ability of providers . . . to continue to file and to collect on liens,
while criminal charges are pending against the provider, including through the use of lien
for collection assignments, has created excessive and unnecessary administrative burdens
for the workers’ compensation system, has resulted in pressure on employers and insurers
to settle liens that may in fact have arisen from prior or ongoing criminal conduct, has
threatened the health and safety of workers who may be referred for or receive medical
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treatment or other medical-legal services that are not reasonable and necessary, has
allowed continued funding of fraudulent practices through ongoing lien collections
during the pendency of criminal proceedings, and has undermined public confidence in
the workers’ compensation system.
“(e) Therefore, in order to ensure the efficient, just, and orderly
administration of the workers’ compensation system, and to accomplish substantial
justice in all cases, the Legislature declares that it is necessary to enact legislation to
provide that any lien filed by, or for recovery of compensation for services rendered by,
any provider of medical treatment or other medical-legal services shall be automatically
stayed upon the filing of criminal charges against that provider for an offense involving
fraud against the workers’ compensation system, medical billing fraud, insurance fraud,
or fraud against the federal Medicare or Medi-Cal programs, and that the stay shall
remain in effect until the resolution of the criminal proceedings.” (Stats. 2016, ch. 868,
sec. 16.)
Among other provisions, SB 1160 added the lien stay provision, which
provides for the automatic stay of any lien “filed by, or on behalf of” a provider of
medical treatment services who has been criminally charged with an offense involving
fraud. This new law provides, “The administrative director may promulgate rules for the
implementation of this section.” (§ 4615, subd. (a).) The statute also directs the
administrative director to “promptly post on the division’s Internet [w]ebsite the names of
any physician, practitioner, or provider of medical treatment services whose liens are
stayed pursuant to this section. (§ 4615, subd. (d).)
At the same time, the Legislature enacted AB 1244, which added section
139.21. This provision authorized “[t]he administrative director” to suspend any provider
of medical treatment from participating in the workers’ compensation system if the
provider has been convicted of a felony or misdemeanor or misconduct described in
section 139.21, subdivision (a)(1)(A)-(C); hereafter, suspension provision). Section
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139.21 also described the administrative director’s duties in identifying medical providers
for suspension, adopting regulations for suspension, notice and hearing requirements, and
the procedures that must be followed for the adjudication of any liens of a suspended
medical provider. (§ 139.21, subds. (a)(2), (b)(1)-(3), (c), (d), (e).)
Section 139.21, subdivisions (e)-(i), outline the special procedures for the
adjudication of liens of a suspended medical provider. Simply stated, if the criminal
disposition requires the liens’ dismissal then the workers’ compensation judges must
enter “orders notifying of those dismissals” effective the date of the final disposition in
the criminal proceeding. (§ 139.21, subd. (e)(1).) If the criminal disposition fails to
specify what should happen to the liens, all pending liens will be consolidated and
“adjudicated in a special lien proceeding as described in subdivisions (f) to (i) inclusive.”
(§ 139.21, subd. (e)(2).)
In September 2016, the Governor signed the anti-fraud legislation (SB 1160
& AB 1244), which became operative on January 1, 2017. At the end of September
2017, the Governor signed additional legislation, Assembly Bill No. 1422 (AB 1422),
designed to provide some needed clarification and close some loopholes found in the
prior years’ anti-fraud legislation. This clean-up legislation (AB 1422) amended the lien
stay provision and section 139.21.
The Senate Rules Committee’s bill analysis explained AB 1422 was
intended to accomplish the following goals: (1) clarify that the suspension provision also
applies to a corporate entity controlled by a convicted medical provider; (2) define
“controlled entity” as one in which the convicted medical provider is an executive officer
or holds an ownership stake of 10 percent or more; (3) further define the types of
convictions required for purposes of spending a medical provider from the workers
compensation system and dismissing that provider’s liens; (4) give the administrator
director authority to amend an existing notice of suspension based on new or additional
grounds; (5) authorize the administrative director to create regulations that specify
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grounds for any exemptions to suspension; (6) allow the Chief Judge of the WCAB to
designate where the WCAB will conduct lien consolidation proceedings for a suspended
medical provider; (7) permit employers to “defer objecting to or paying any bill”
submitted by the criminally charged medical provider until the stay is lifted; (8) permit
employers to object to bills submitted by convicted medical providers; (9) clarify the
timeline for staying liens and that if there is a conviction the medical providers liens shall
remain stayed until the lien consolidation proceeding begins; (10) clarify a medical
provider is permitted to dismiss a stayed lien and forfeit all sums claimed; (11) clarify a
lien consolidation process will not be stayed in the event new or additional criminal
charges are filed against a medical provider; and (12) explicitly provide “the
administrative director may promulgate regulations for the implementation of the lien
stay process.” (Sen. Rules Com., Off. of Sen. Floor Analysis, 3d reading analysis of Sen.
Bill No. 1422 (2016-2017 Reg. Sess.) as amended Sept. 8, 2017, pp. 2-4.)
The comment section of the Senate Rules Committee’s bill analysis
provides some insight as to why the anti-fraud legislation was passed and then needed to
be cleaned up. “Last year, as part of a larger workers’ compensation anti-fraud initiative,
the Legislature passed two significant bills[.] . . . Both bills were a response to a series of
articles from the Center of Investigative Reporting, which detailed more than $1 billion in
fraudulent activity by a variety of medical providers. While all the schemes were
different, each had one common feature: the use of the workers compensation lien
system to monetize the fraud. [¶] Unfortunately, the timeline for the staying of liens did
not conform to [the] timeline for the lien consolidation process. This led to some rather
nonsensical attempts by convicted fraudsters to try to collect on their liens before the lien
consolidation process provided in AD 1244 was concluded, as the stay due to SB 1160
was lifted as the charges were no longer pending. These dueling timelines created
implementation challenges for the regional WCABs.” (Sen. Rules Com., Off. of Sen.
Floor Analysis, 3d reading analysis of Sen. Bill No. 1422 (2016-2017 Reg. Sess.) as
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amended Sept. 8, 2017, pp. 2-4.) The committee added there were other issues that arose
in the process of implementing this new legislation, such as how employers should
address new medical bills from charged or convicted medical providers, and how to
address liens that were forfeited as part of a plea bargain or sentence. (Ibid.)
“This bill addresses these issues by revising and clarifying the lien staying
and dismissal process, codifying existing procedures developed by the WCAB, and
bringing the timeliness for both processes into alignment, ensuring that a medical
provider who is convicted of fraudulent behavior is unable to use a loophole to pursue
liens that should be dismissed under the law.” (Sen. Rules Com., Off. of Sen. Floor
Analysis, 3d reading analysis of Sen. Bill No. 1422 (2016-2017 Reg. Sess.) as amended
Sept. 8, 2017, pp. 2-4.)
Finally, the committee acknowledged in its analysis that the
constitutionality of SB 1160 was currently being challenged in a Federal District Court.
(Sen. Rules Com., Off. of Sen. Floor Analysis, 3d reading analysis of Sen. Bill No. 1422
(2016-2017 Reg. Sess.) as amended Sept. 8, 2017, pp. 2-4.) It recognized United States
District Court Judge Wu issued a tentative decision in July 2017, regarding a request for
an injunction against the lien stay provision. (Ibid.) The committee noted Judge Wu
requested supplemental briefing and, therefore, it was uncertain if the injunction would
be granted. (Ibid.) Because litigation was ongoing, the committee concluded the lien
stay provision “remains the law of the land.” (Ibid.)
V. Constitutional Challenge to New Legislation in Federal Court
Barri, in his petition, reply, and supplemental briefing ask this court to take
judicial notice of numerous documents and orders related to the same federal lawsuit
discussed by the Senate Rules Committee. Vanguard is an ongoing putative civil rights
lawsuit filed by numerous doctors and medical services corporations against the Director
of the California Department of Industrial Relations and the Acting Administrative
Director of the California Division of Workers’ Compensation. Plaintiffs’ facial
17
constitutional challenge to the lien stay provision included claims for injunctive and
declaratory relief. As mentioned by the Senate Rules Committee, in July 2017 Judge Wu
issued a minute order and tentative ruling indicating he would grant the motion for a
preliminary injunction regarding the lien stay provision.
The judicially noticed documents show that on October 30, 2017, Judge
Wu issued his final ruling, concluding the motion would be granted despite amendments
made to the lien stay provision by the recent enactment of AB 1422. (Vanguard, supra,
(Oct. 30, 2017, No. EDCV 17-965-GW(DTBX)) 2017 WL 6887855.) On December 22,
2017, Judge Wu issued the preliminary injunction order granting, in part, the motion for a
preliminary injunction stating the lien stay provision still suffered from several
procedural due process problems. (Vanguard, supra, (Dec. 22, 2017, No. EDCV 17-965-
GW(DTBX)) [nonpub. ord.].)
Specifically, Judge Wu ordered the Department of Industrial Relations to
amend its website and include the name of any medical provider or lien claimant whose
liens are subject to the lien stay provision. (Vanguard, supra, (Dec. 22, 2017, No. EDCV
17-965-GW(DTBX)) [nonpub. ord.].) Judge Wu determined the website listed only the
names of charged and convicted medical providers and should add the names of
noncharged entities with stayed liens. (Ibid.)
In addition, Judge Wu concluded the lien stay provision did not provide
affected claimants with a hearing either before liens were stayed or afterwards. The
preliminary injunction specified the following: “Lien claimants shall be given the
opportunity to be heard within any workers’ compensation case at a lien conference
and/or lien trial, as appropriate under usual WCAB adjudication procedures, if any
dispute or question is raised or arises as to whether any lien at issue in the case falls
within the provisions of . . . section 4615 such that a stay of the lien is required. The
purpose of such hearings . . . shall be solely to prevent the erroneous application of . . .
[s]ection 4615 by its own terms, and not for the purpose of allowing any challenge . . . to
18
the propriety of the underlying criminal charges giving rise to the stay, or for the purpose
of disputing whether a lien arises from” the misconduct addressed by the criminal
charges. (Vanguard, supra, (Dec. 22, 2017, No. EDCV 17-965-GW(DTBX)) [nonpub.
ord.].)
At the end of April 2018, Judge Wu denied plaintiffs’ motion for contempt,
made on the grounds the Government was refusing to comply with the preliminary
injunction order. (Vanguard, supra, (Apr. 26, 2018, No. EDCV 17-965-GW(DTBX))
[nonpub. ord.].) Plaintiffs had complained the Government was implementing new
procedures (unknown to the public) while representing to the court that existing
procedures were sufficient. (Ibid.) They argued it was improper for the WCJ to notify
the AFU (a non-party) and WCJs should not consider evidence provided by the AFU.
(Ibid.) The Government maintained it had complied with the court’s order, and involving
AFU in the proceedings was appropriate under the circumstances. (Ibid.)
VI. Procedures Available to Claimants with Stayed Liens
In her declaration, Judge Levy did not indicate whether the procedures she
described (the right to file a DOR/petition) would be available options for claimants
wishing to challenge the AFU’s flagging decision, but whose liens were not yet ripe for
adjudication using existing procedures. Based on our review of other declarations in our
record, it appears the Government has slowly become more receptive to permitting
hearings to resolve these types of issues in a more timely fashion.
In the beginning of these proceedings (July 2017), Barri submitted evidence
showing several different noncharged entities had not received advance notice their liens
were stayed, WCJs denied their requests to challenge the grounds for staying the liens,
and their lien trials were being continued without any opportunity to be heard. For
example, Barri submitted orders rendered in a different workers’ compensation case
where the WCJ acknowledged the “management” privately circulated a spreadsheet,
listing the flagged noncharged entities. The list was not accessible to the public. Barri
19
also complained Tristar’s lien representatives were having “limited success” settling liens
outside of court because most insurers refused to negotiate with Tristar. He added the
WCJs would not allow Tristar’s representatives to participate in lien hearings and refused
to sign stipulations of settlement. The Government did not initially refute this factual
account with any documentation relating to this case or other workers’ compensation
cases. Instead, it argued “theoretically” there existed procedures (listing without analysis
nine different statutes/regulations) already in place to address these lien claimants’
concerns.
Nearly one year later (March 2018), the Government offered evidence there
were really only two possible procedures available to lien claimants wishing to resolve
mistakes with their flagged liens. Mi Kim, the AFU’s new Chief of the Office of the
Director, declared that in addition to informally alerting anyone working at the AFU
about a mistake, there were currently “well over 150” notices of hearing “for lien
conferences or lien trial on issues related to whether section 4615 applies to a particular
lien.” Thus, it appears the WCJs at some point began accepting DORs and petitions of
claimants seeking to remedy a perceived improperly stayed lien on at least a few limited
grounds. She offered three examples of noncharged entities seeking assistance with the
AFU, and after their claims were rejected, these entities sought assistance from a WCJ
via a lien hearing or trial.
Barri did not refute the Government’s evidence showing holders of stayed
liens were now able to schedule lien hearings/trials to address their concerns. However,
he presented evidence contradicting Kim’s assertion the AFU had specific procedures in
place or a publicly available mechanism for reviewing its flagging decisions. Michael
Alan Rudolph, a physician in Huntington Park, declared he was the victim of
misidentification. AFU flagged his liens in the Electronic Adjudication Management
System (EAMS), although his name did not appear on the Government’s website list of
20
5
criminally charged providers. Rudolph declared, “When I initially learned that my liens
were stayed, there appeared to be no system or procedure to address the fact” AFU made
a mistake. Eventually he learned the only way to address the issue was to hire a lien
representative to appear in each worker’s compensation case that was “at the stage of
resolving lien claims.” In each case to date, the WCJs have ruled in Rudolph’s favor and
determined his liens should not be stayed. Rudolph noted this process has created a
significant negative economic impact. The expense of having to correct the error for
each individual lien claim is expensive and prohibits him from settling pending lien
claims out of court.
Barri submitted two declarations providing evidence the scheduled lien
conferences/trials were being unnecessarily delayed. These declarations discussed other
workers’ compensation cases in which WCJs refused to proceed before notifying the
AFU, a non-party, about the proceedings. WCJs also continued hearings to give the AFU
an opportunity to present evidence supporting its flagging decisions.
One declaration was supplied by Scott Schoenkopf, managing director of
Liening Edge. He explained his company provided representatives to pursue the rights of
lien claimants through the workers’ compensation system. He provided a detailed
description of the hardships facing three different lien claimants seeking to correct
mistakenly flagged liens. In one case, the noncharged entity did not know the reason
why its liens were stayed. The WCJ was unable to disclose the name of the criminally
charged medical provider the AFU determined was “control[ing]” the noncharged entity.
The second declaration was from Carlyle R. Brakensiek, an attorney who specialized in
workers’ compensation issues for a lobbying company. She opined many physicians
5
In June 2017, Kathy Patterson, manager of the EAMS unit explained not all
information in the system can be viewed by the public, and some information can only be
seen by those with designated access. It was her job to “flag (or code) for liens”
identified by the AFU.
21
were ending their lien treatment practice because enforcement had become onerous,
expensive, and risky.
Both parties agreed there was no system in place for WCJs to consider
(before completion of the criminal matter) the substantive issue of whether the lien was
tainted or adjudicate the criminal misconduct. Whether the stayed lien was tainted by
criminal misconduct was an issue to be decided as part of the special consolidated lien
trial described in section 139.21, subdivision (e).
VII. Risks in Delaying Adjudication of Liens
The parties agreed that typically a workers’ compensation lien may go
unpaid for many years (in excess of 10 years), depending on the complexity of the injured
worker’s case. They seem to agree a claimant will have to wait a longer period to receive
payment on an untainted stayed lien. Neither party offered evidence indicating the
amount of delay.
In the original briefing, the parties did not explain if, or how, payments
would be effected if a lien were stayed beyond the passage of time normally expected for
liens. Was there any risk a stayed lien would not be paid if the other liens in a worker’s
case were settled or paid? The parties submitted supplemental briefing and evidence on
this issue.
Judge Levy stated there was little risk that collection on a stayed lien
would, at some point, become impossible. “In practical terms, and absent unusual or
extraordinary circumstances, the answer to this question is no. Workers’ compensation
insurers are required to create and to maintain appropriate reserves when a claim is filed.
After a worker’s claim is settled, and assuming a lien is valid under all applicable
statutory and regulatory provisions, the insurer has continuing liability to pay outstanding
and valid lien claims, and also has an obligation to maintain appropriate reserves to do so.
If the insurer were to go insolvent, the California Insurance Guarantee Association
(CIGA) would be responsible for those payments.”
22
Barri agreed the insurer had a continuing obligation to pay. However, it
asserted there would be problems satisfying the statutory requirements due to the passage
of time. Brakensiek declared, “When the resolution of a lien claim is significantly
delayed, a lien claimant has an increasingly hard time marshalling the evidence needed to
prove all the of the claim’s elements (i.e., that the treatment was reasonable and
necessary; and that the worker’s condition resulted from an industrial injury, which
includes proof of causation and affected body parts). Those elements often remain
unproven when the worker settles the underlying claim, and the lien claimant then has the
burden of proving them. [¶] . . . Over time, records needed to prove these elements can
be lost, misplaced, destroyed pursuant to HIPAA regulations, inadvertently discarded or
recycled; employers and other providers with necessary records go out of business; and
witnesses such as the injured worker or third parties such as the primary care physician
disappear, retire, or pass away.” We note, Brakensiek did not provide any supporting
documentation to support her statement records will be lost or destroyed. Barri did not
present evidence regarding how much longer a stayed lien will be delayed compared with
an un-stayed lien.
CONSTITUTIONAL CHALLENGES
Barri challenges the lien stay provision and section 139.21 on five
constitutional grounds as follows: (1) the Sixth Amendment right to counsel; (2) the First
Amendment right to petition; (3) the Fourteenth Amendment right to substantive due
process; (4) State and Federal right to procedural due process; and (5) the ex post facto
clause. We will address each constitutional challenge separately below after providing a
brief summary of the undisputed facts underlying Barri’s criminal conviction and
charges.
I. Factual Summary
Barri has been a chiropractor since 1995, and he is the cofounder and a
shareholder of Tristar. In March 2016, Barri pleaded guilty to a single count of
23
conspiracy in violation of 18 U.S.C. section 371, for referring patients to Pacific Hospital
of Long Beach for back surgeries. Barri declared he had not yet been sentenced, but part
of his plea agreement was to pay $206,505 in restitution. On April 3, 2017, Barri was
suspended from participating in the workers compensation system as a provider pursuant
to section 139.21.
Meanwhile in an Orange County Superior Court, Barri and many other
providers were criminally charged in a case concerning a kickback scheme involving
medical insurance billing fraud in connection with workers’ compensation patients.
(People v. Charbonnet et al. (Super. Ct. Orange County, 2014, No. 14ZF0334)
(Charbonnet).) In 2016, this court granted a petition for writ of mandate, directing the
trial court to set aside many of the charges in the criminal indictment for procedural
reasons. (Ahmed et al. v. Superior Court (Mar. 10, 2016, G051473) [nonpub. opn.].) In
May 2016, the district attorney re-filed the charges against Barri in a criminal complaint.
Barri asserts the charges relate to billing fraud for “transdermal creams” prescribed by
providers treating patients at Tristar. No date has been set for trial, and Barri expected
the case would be continued for “a year or more.” He predicted liens having no
connection to the Charbonnet allegations will likely be stayed for “a year or longer” until
resolution of the criminal case, under the new anti-fraud legislation.
Barri explained, “Tristar operated as a multi-specialty medical group from
October 2001 through June 2016. In addition to my chiropractic practice, internists,
orthopedic surgeons, neurologists, neurosurgeons, physical therapists, acupuncturists, and
other chiropractors served as independent contractors and provided services to Tristar’s
patients.” Barri stated most of Tristar’s patients were injured workers with workers’
compensation claims, however, the medical group also treated patients for personal injury
claims and patients covered by traditional health insurance. In June 2016, Tristar merged
into another medical group but remained in business to collect outstanding workers’
compensation liens. Barri stated Tristar had 3,060 outstanding workers’ compensation
24
liens, valued at over $20 million. He maintained all the liens were filed under Tristar’s
name, and the filing form in effect until January 2017, did not allow organizational
claimants to include the names of individual providers whose services were included in
the lien. Thus, many of these pre-2017 liens could relate to medical providers who have
no criminal charges pending. In January 2017, after enactment of the anti-fraud
legislation, the Government implemented a new lien filing form that required
organizational lien claimants to list the names and identifying information of providers.
These liens will identify Barri, however, he asserts none of those liens arises from or has
any connection to the conduct described in the criminal proceedings.
Barri declared, “Tristar’s liens provide my sole source of income.” He
stated if the liens were stayed, he would no longer be able to pay his family’s living
expenses or his criminal defense attorney in the Charbonnet case. In addition, Tristar’s
only cash flow would “effectively be cut off,” and it would be unable to pay lien filing
fees on pending claims for services when they “become ripe for filing.” He added several
insurance companies were pressuring Tristar to settle its liens “at significantly reduced
amounts” due to his pending criminal charges.
Barri explained there was some confusion about whether Tristar’s liens
were stayed. Four days after the lien stay provision became effective Barri’s “office”
learned Tristar’s liens had been flagged on the EAMS. The following day, the AFU
removed the “‘stay’” designation. The Government submitted evidence in June 2017
indicating Tristar’s liens were not flagged on the website. Patterson declared she
removed the flag for the Tristar liens because she was “told” it was included on the list by
mistake. Our review of the most current version of the judicially noticed website shows
Tristar is not on the list of flagged liens held by noncharged entities. However, Barri
declared his representatives were unable to find WCJs willing to adjudicate his liens on
the grounds they are stayed.
25
Barri also discussed the impact of the suspension provision. Barri stated
that on April 3, 2017, he was suspended from participating in the workers’ compensation
system. He stated the special lien proceeding requires him to rebut the presumption the
liens are tainted by his misconduct. He maintained, “I am unsure how to prove this
negative: that Tristar’s liens, many of which cover services that were provided years ago,
and in some cases by providers other than me, were unconnected to criminal, fraudulent,
or abusive conduct or activity. It is unclear to me whether Tristar’s medical files will
contain enough evidence to prove this negative.”
II. Right to Counsel
Long ago, the United States Supreme Court concluded that pursuant to the
Sixth Amendment, a defendant “should be afforded a fair opportunity to secure counsel
of his own choice” when the defendant has the financial means. (Powell v. Alabama
(1932) 287 U.S. 45, 53; see also Wheat v. United States (1988) 486 U.S. 153, 159.) Barri
argues the lien stay provision violated his Sixth Amendment right to hire counsel of his
choice, relying solely on Luis v. United States (2016) __ U.S. __ [136 S. Ct. 1083] (plur.
opn. of Breyer, J.) (Luis). He argues his liens had no connection to his criminal activity
and he needs payment from these liens to afford his criminal lawyer. The Government
maintains the Luis case does not apply because liens at issue do not represent property
“fully” belonging to an individual and there was inadequate evidence Barri actually
needed additional funds to pay for his criminal lawyer. We agree with the Government.
The Supreme Court in Luis held the Government’s pretrial restraint of
legitimate, untainted assets needed to pay a reasonable fee for the assistance of counsel of
choice violated the criminally charged defendant’s Sixth Amendment rights. (Luis,
supra, 136 S.Ct. at p. 1096 (plur. opn. of Breyer, J.).) In the Luis case, a federal grand
jury indicted Sila Luis for conspiring to commit healthcare fraud by using the healthcare
companies she operated to bill Medicare for services neither medically necessary nor
26
actually provided. The Government alleged the charged fraud resulted in $45 million
improperly paid to Luis’ companies. (Id. at p. 1103 (dis. opn. of Kennedy, J.).)
The court noted Luis had spent much of the fraudulently obtained money
by the time she was indicted. “To establish its entitlement to a restraining order, the
Government showed that Luis and her co-conspirators were dissipating the illegally
obtained assets. In particular, they were transferring money involved in the scheme to
various individuals and entities, including shell corporations owned by Luis’ family
members. As part of this process, Luis opened and closed well over 40 bank accounts
and withdrew large amounts of cash to hide the conspiracy’s proceeds. Luis personally
received almost $4.5 million in funds and used at least some of that money to purchase
luxury items, real estate, automobiles, and to travel. Based on this and other evidence,
the district court entered an order prohibiting Luis from spending up to $45 million of her
assets.” (Luis, supra, 136 S.Ct. at p. 1104 (dis. opn. of Kennedy, J.).) Pursuant to 18
U.S.C. section 1345, the order stopped Luis from dissipating her remaining asset so that
the Government could use the money to pay criminal penalties and restitution after
conviction. (Id. at pp. 1087-1088 (plur. opn. of Breyer, J.).)
18 U.S.C. section 1345 permits a court to freeze certain assets when a
criminal defendant has been charged with violating federal healthcare and banking laws,
which includes three types of assets: “(1) property ‘obtained as a result of’ the crime, (2)
property ‘traceable’ to the crime, and (3) other ‘property of equivalent value.’” (Luis,
supra, 136 S.Ct at p. 1087 (plur. opn. of Breyer, J.), quoting 18 U.S.C. § 1345(a)(2).) In
Luis, the issue was whether the Government could freeze property falling into the third
category, i.e., untainted assets belonging fully to Luis. (Ibid.) Thus, the case involved an
“as applied” constitutional challenge to the court’s order freezing Luis’ assets.
There is not a majority opinion in Luis. Justice Breyer’s four-justice
plurality opinion framed the issue to be decided as follows: “The question presented is
‘[w]hether the pretrial restraint of a criminal defendant’s legitimate, untainted assets
27
(those not traceable to a criminal offense) needed to retain counsel of choice violates the
Fifth and Sixth Amendments.’” (Luis, supra, 136 S.Ct. at p. 1088 (plur. opn. of Breyer,
J.).) The plurality opinion and Justice Thomas’ concurrence answered the Sixth
Amendment question in the affirmative. (Id. at p. 1096 (plur. opn. of Breyer, J.); Id. at p.
1097 (conc. opn. of Thomas, J.).) “[O]ur answer is that the pretrial restraint of legitimate,
untainted assets needed to retain counsel of choice violates the Sixth Amendment. The
nature and importance of the constitutional right taken together with the nature of the
assets lead us to this conclusion.” (Id. at p. 1088 (plur. opn. of Breyer, J.).)
The plurality’s analysis began with a general discussion of the Sixth
Amendment, noting the right to assistance of counsel is “‘fundamental,’” but it is also
limited: “‘[T]he Sixth Amendment guarantees a defendant the right to be represented by
an otherwise qualified attorney whom that defendant can afford to hire.’ [Citation.]”
(Luis, supra, 139 S.Ct. at p. 1089 (plur. opn. of Breyer, J.).) A defendant has no right “to
an attorney who is not a member of the bar, or who has a conflict of interest due to a
relationship with an opposing party[,]” nor does a defendant unable to afford counsel
have a right “to have the [g]overnment pay for his preferred representational choice.”
(Ibid.)
The court rejected the Government’s “wish[] to guarantee that . . . funds
will be available later to help pay for statutory penalties (including forfeiture of untainted
assets) and restitution, should it secure convictions.” (Luis, supra, 139 S.Ct. at p. 1089
(plur. opn. of Breyer, J.).) It concluded the Government was relying on cases that were
distinguishable because they involved tainted assets. (Id. at pp. 1089-1090.) It reasoned,
“The relevant difference consists of the fact that the property here is untainted; i.e., it
belongs to the defendant, pure and simple. In this respect it differs from a robber’s loot, a
drug seller’s cocaine, a burglar’s tools, or other property associated with the planning,
implementing, or concealing of a crime. The Government may well be able to freeze,
perhaps to seize, assets of the latter, ‘tainted’ kind before trial. As a matter of property
28
law the defendant’s ownership interest is imperfect. The robber’s loot belongs to the
victim, not to the defendant. . . . [¶] The property at issue here, however, is not loot,
contraband, or otherwise ‘tainted.’ It belongs to the defendant.” (Id. at p. 1090.)
The Luis court concluded the untainted character of the assets was a
distinguishing factor. (Luis, supra, 139 S.Ct. at pp. 1089-1090 (plur. opn. of Breyer, J.).)
It explained that in Caplin & Drysdale, Charted v. U.S. (1989) 491 U.S. 617, 624, the
case involved tainted assets, where the title to the assets vested in the Government upon
commission of the crime and, therefore, the defendant had no ownership interest and no
right of title to those assets. (Luis, supra, 139 S.Ct. at p. 1090 (plur. opn. of Breyer, J.).)
Similarly, it determined the U.S. v. Monsanto (1989) 491 U.S. 600, case “concerned only
the pretrial restraint of assets that were traceable to the crime . . . thus, the statute passed
title to those funds at the time the crime was committed (i.e., before the trial) . . . .” (Luis,
supra, 139 S.Ct. at p. 1091 (plur. opn. of Breyer, J.).) The court concluded these cases
established “that whether property is ‘forfeitable’ or subject to pretrial restraint under
Congress’ scheme is a nuanced inquiry that very much depends on who has the superior
interest in the property at issue.” (Ibid.)
The court stated, “Here, by contrast, the Government seeks to impose
restrictions upon Luis’ untainted property without any showing of any equivalent
governmental interest in that property. [I]f this were a bankruptcy case, the Government
would be at most an unsecured creditor. Although such creditors someday might collect
from a debtor’s general assets, they cannot be said to have any present claim to, or
interest in, the debtor’s property. [Citations.] The competing property interests in the
tainted-and untainted-asset contexts therefore are not ‘exactly the same.’ [Citation.] At
least regarding her untainted assets, Luis can at this point reasonably claim that the
property is still ‘mine,’ free and clear.” (Id. at p. 1092 (plur. opn. of Breyer, J.).)
The court held Luis’ Sixth Amendment right to counsel of choice
outweighed “the Government’s contingent interest in securing its punishment of choice
29
(namely, criminal forfeiture) as well as the victims’ interest in securing restitution
(notably, from funds belonging to the defendant, not the victims).” (Luis, supra, 139
S.Ct. at p. 1093 (plur. opn. of Breyer, J.).) “While these interests are important, to deny
the Government the order it requests will not inevitably undermine them, for, at least
sometimes, the defendant may possess other assets—say, ‘tainted’ property—that might
be used for forfeitures and restitution. [Citation.]” (Ibid.)
We take from the Luis decision that the following three requirements must
be satisfied before holding a pretrial restraint of property violates the Sixth Amendment:
(1) The property belongs fully to the defendant; (2) The property is entirely untainted by
the criminal activity; and (3) The property is actually needed for the defendant to retain
counsel. Applying these three elements here, Barri contends the proceeds from the liens
fully belong to him, the assets are untainted by his criminal activity, and he will not be
able to afford his attorney if the liens remain stayed. He concludes the lien stay provision
on its face unconstitutionally restrains the same type of untainted assets at issue in the
Luis case. Barri provided declarations to support the factual contention he will be unable
to afford his criminal defense attorney.
We conclude Barri’s workers’ compensation liens are not at all like the
assets described in the Luis case. The Luis defendant sought the return of assets held
fully in her possession (real estate, luxury items, automobiles, and corporations). In this
case, Barri’s entitlement to payment on his liens can at best be described as uncertain.
The liens are not assets belonging to Barri “pure and simple.” (Luis, supra, 136 S.Ct. at
p. 1090 (plur. opn. of Breyer, J.).) Rather, a workers’ compensation lien represents an
unreliable expectancy in a payment, contingent upon the satisfaction of several factors
listed in the workers’ compensation statutory scheme. Workers’ compensation liens are
heavily regulated statutory creations and the “rights are not vested until they are ‘reduced
to final judgment.’ [Citation.]” (Angelotti, supra, 791 F.3d at p. 1081 [right to lien a
statutory remedy not property interest protected by Fifth Amendment Taking Clause].)
30
As discussed, there is a lengthy list of “conditions of compensation” that must be
satisfied before the lienholder can collect payment. (§ 3600.) The lien claimant’s rights
are always derivative of the injured worker’s rights, and therefore, “to assert a lien
against a compensation award, there must be a valid debt, and the debt must be in one of
the classes enumerated in the statute for which a lien may be lawfully declared in that
proceeding. [Citation.]” (Rassp et al., California Workers’ Compensation Law (7th ed.
2017) § 17.01, p. 17-5.)
In light of the above, we conclude a workers’ compensation lien is not
personally owned “pure and simple” or “free and clear” by an accused/convicted medical
provider such as Barri. Simply having a lien is meaningless unless the lien claimant can
establish “the validity of the lien claim both as to entitlement and as to amount.
[Citations.]” (Rassp et al., California Workers’ Compensation Law (7th ed. 2017)
§ 17.01, p. 17-5; §§ 3202.5, 5705.) The workers’ compensation lien represents a
statutory remedy, rather than a typical asset. Because the right to receive payment is
uncertain due to many statutory conditions and limitations to enforcement, we conclude it
is not the type of personal asset protected by the Sixth Amendment.
While we believe the above ruling is dispositive, we note there is one other
important distinction between the Luis decision and this case. In Luis, the Government
violated a single defendant’s right to counsel by taking property indisputably and entirely
untainted by the defendant’s criminal activity. (Luis, supra, 139 S.Ct. at p. 1085 (plur.
opn. of Breyer, J.).) There was no factual dispute about the untainted nature of the assets
at issue. In contrast, here, there has been no determination or stipulation Barri/Tristar’s
liens are untainted by Barri’s criminal activity.
Barri’s and his criminal defense attorney’s (Jessica C. Munk) declarations
on this point are insufficient. Without a criminal disposition, we can only speculate as to
the true nature and scope of Barri’s “complex medical billing fraud” and kickback
scheme. As noted by Kim in her declaration, typically workers’ compensation fraud
31
involves “far-reaching kickback and/or cross-referral schemes involving multiple parties
and entities, and huge sums of fraudulent billings.” For many charged providers “the
criminal operations involved were highly sophisticated, involving complex financial
relationships among multiple co-conspirators or co-defendants, and also potentially
involving a number of business entities either owned, controlled, or used in some manner
in the facilitation of the crimes, by the charged/convicted providers.” Without a
conviction, it cannot be unequivocally said which liens are free from the taint of the
criminal conduct.
We recognize the parties presented a factual dispute regarding the third
element of Luis, i.e., Barri’s actual need for the assets at issue. In the Luis case, the
Government conceded freezing the funds would have the consequence of interfering with
defendant’s “ability to use the funds she needs to pay for her chosen attorney.” (Luis,
supra, 136 S.Ct. at p. 1089 (plur. opn. of Breyer, J.).) In that case, there was no factual
issue regarding whether defendant actually needed the assets to retain counsel. Such is
not the case here. Barri presented evidence he is financially destitute. The Government
presented evidence Barri and his wife received income from employment, possessed cars,
and rented an expensive home. We need not resolve this factual dispute. Our prior
determination Luis’ reasoning does not apply to the Government’s temporary stay of
pending workers’ compensation liens is dispositive. We find no merit to Barri’s Sixth
Amendment facial and as applied challenges to the lien stay provision.
III. Right to Petition the Courts
“The right to petition the government for redress of grievances is protected
by both the federal and state Constitutions. (U.S. Const., 1st Amend.; Cal. Const., art. I,
§ 3.) . . . As pertinent here, the right has also been construed as encompassing the right to
petition the judicial branch for resolution of legal disputes. [Citations.] [¶] While the
right of petition ‘is accorded “a paramount and preferred place in our democratic
system”’ . . . [r]easonable, narrowly drawn restrictions designed to prevent abuse of the
32
right can be valid. [Citation.]” (Vargas v. City of Salinas (2011) 200 Cal. App. 4th 1331,
1342.)
Barri maintains the lien stay provision is not reasonable or narrowly drawn.
He explains, “[I]t unreasonably results in lengthy, unwarranted delays before lien
claimants can finally litigate their lien claims on the merits, including untainted lien
claims.” Barri maintains the statute should be more narrowly drawn to stay only tainted
liens and exclude liens related to uncharged providers.
Noticeably missing from the briefing on this argument is any legal
authority supporting the notion a statutorily imposed delay in the resolution of a legal
dispute is the same thing as barring one from exercising their right to petition.
Moreover, the argument has been rendered moot in part by evidence in our record
showing WCJs have scheduled hearings to address grievances from both charged
providers and noncharged entities. And after Barri’s criminal proceedings conclude he
will be afforded a forum to address his grievances about the liens. (§ 139.21, subds. (e)
& (f) [consolidated special lien proceedings].) There is no evidence suggesting this
forum will be diminished or inadequate. Finally, Barri’s complaints about the lien stay
provision are currently being heard by this court. In light of all the above, we conclude
this constitutional challenge lacks merit.
IV. Due Process Claims
As the Supreme Court has explained: “This Court has held that the Due
Process Clause protects individuals against two types of government action. So-called
‘substantive due process’ prevents the government from engaging in conduct that ‘shocks
the conscience,’ . . . or interferes with rights ‘implicit in the concept of ordered liberty,’
. . . . When government action depriving a person of life, liberty, or property survives
substantive due process scrutiny, it must still be implemented in a fair manner . . . . This
requirement has traditionally been referred to as ‘procedural’ due process.” (United
States v. Salerno (1987) 481 U.S. 739, 746, italics added.)
33
Barri’s briefing does not distinguish between the two types of government
action. We conclude his due process challenges fall into the following categories: (1)
those relating to the benefit of receiving payment; and (2) those resting on a lien
claimant’s interest in litigating his grievances. The first category includes Barri’s
argument the new anti-fraud legislation impermissibly and unfairly stays liens untainted
by criminal misconduct. This is a substantive due process claim. The second category
relates to allegations the statute is not implemented in a fair manner because of notice
deficiencies and the absence of any timely procedure to be heard on the decision to stay
untainted liens or those related to uncharged providers. These are procedural due process
claims.
We note the Government’s response to these due process challenges is to
lump them together and boldly argue there can never be a cognizable due process claim
concerning worker’s compensation legislation. (Citing Cal. Const., art. XIV, § 4 [plenary
power over worker’s compensation system]; Stevens v. Workers’ Comp. Appeals Bd.
(2015) 241 Cal. App. 4th 1074, 1093 (Stevens).) Although its analysis of the issues was
incorrect, we conclude there are other reasons why the anti-fraud legislation does not
violate substantive due process, Federal procedural due process, or State procedural due
process.
A. Substantive Due Process
Barri’s substantive due process argument attacks the statute’s overinclusive
application to untainted liens. “The term ‘substantive due process’ refers to a line of
disparate cases which generally concludes that the guaranty of due process in the Fifth
and Fourteenth Amendments includes a ‘substantive’ component that restricts
infringement upon certain fundamental ‘liberty interests.’ [Citation.]” (People v.
Rodriguez (1998) 66 Cal. App. 4th 157, 175.) “‘Generally, the constitutional guaranty of
substantive due process protects against arbitrary legislative action; it requires legislation
not to be “unreasonable, arbitrary or capricious” but to have “a real and substantial
34
relation to the object sought to be attained.” . . .’ [Citation.]” (Longval v. Workers’
Comp. Appeals Bd. (1996) 51 Cal. App. 4th 792, 800.) Consequently, legislation does not
violate substantive due process so long as it reasonably relates “‘to a proper legislative
goal.’ [Citations.]” (Coleman v. Department of Personnel Administration (1991) 52
Cal. 3d 1102, 1125 (Coleman).)
“The analysis under substantive due process begins with a careful
description of the right asserted. [Citations.] Because of the inherently subjective nature
of substantive due process, courts proceed cautiously when asked to break new ground
under this guise. [Citations.]” (People v. Santos (2007) 147 Cal. App. 4th 965, 978
(Santos).)
The lien stay provision calls for the automatic stay of any liens held by
criminally charged providers and the noncharged entities they control. The legislation
potentially sweeps up untainted liens, resulting in a substantial economic loss to an
innocent party for a lengthy period of time. Thus, it appears the right being asserted is
solely economic. With this conclusion in mind, we turn to the second step in the
analysis.
“‘The second step in a substantive due process analysis requires the court to
determine whether the right or liberty interest sought to be protected is a “fundamental”
one. [Citation.]’ [Citation.]” ‘“If the asserted right is not such a fundamental interest, it
is not entitled to protection under the Due Process Clause of the Fourteenth Amendment.’
[Citation.]” (Santos, supra, 147 Cal.App.4th at p. 979.)
“The protections of substantive due process have for the most part been
accorded to matters relating to marriage, family, procreation, and the right to bodily
integrity.’ [Citation.] [¶] . . . ‘In an effort to scale back what had become an apparently
unbounded source of judicial authority, the Supreme Court in recent decades has
restricted the scope of substantive due process. [¶] There can be no doubt that the Due
Process Clause of the Fourteenth Amendment confers both procedural and substantive
35
rights. . . . However, the use of substantive due process to extend constitutional
protection to economic and property rights has been largely discredited. . . . Rather,
recent jurisprudence restricts the reach of the protections of substantive due process
primarily to liberties “deeply rooted in this Nation’s history and tradition.” . . . Thus, the
Fourteenth Amendment protects against a State’s interferences with “personal decisions
relating to marriage, procreation, contraception, family relationships, child rearing, and
education,” as well as with an individual’s bodily integrity.’ [Citation.]” (Clark v. City
of Hermosa Beach (1996) 48 Cal. App. 4th 1152, 1183-1184 (Clark).)
Barri’s argument fails at this second step of the analysis. Barri does not
suggest why his right to timely process untainted liens qualifies as a fundamental interest
entitled to substantive due process protection. It is an economic right, created by statute,
heavily regulated by the government, and derivative to an injured worker’s ability to
satisfy numerous requirements. (See Angelotti, supra, 791 F.3d at p. 1081 [right to
benefits statutory and not vested until reduced to final judgment].)
Finally, we conclude the legislative action in this case was not arbitrary or
irrational, and does not “‘shock the conscience.’” (Uhlrig v. Harder (10th Cir. 1995) 64
F.3d 567, 574.) As plainly stated in the uncodified statement of legislative declarations,
the workers’ compensation system was facing an administrative crisis due to the
“continued funding of fraudulent practices through ongoing lien collections during the
pendency of criminal proceedings[,]” which not only threatened the health and safety of
injured workers but also undermined public confidence in the system. (Stats. 2016, ch.
868, § 16.) It was not irrational for the Legislature to take action to stop payments for
fraudulent schemes. It created a legislative scheme to simply maintain the status quo
until after the criminal case has concluded, when it can be conclusively decided if the
liens were untainted or tainted (payable or dismissed). We conclude legislation that
temporarily halts payment, but does not eliminate the right to collect on untainted liens,
reasonably relates to a “proper legislative goal.” (Coleman, supra, 52 Cal.3d at p. 1125.)
36
Although application of the lien stay provision may result in a delayed payment of some
valid untainted liens, it cannot be said the governments’ action “demonstrate[s] a degree
of outrageousness and a magnitude of potential or actual harm that is truly conscience
shocking.” (Ibid; see Clark, supra, 48 Cal.App.4th at p. 1185 [substantive due process
violation requires level of outrageousness greater than ordinary tort].) We conclude Barri
has not proven a violation of substantive due process.
B. Procedural Due Process
Barri relies on both the federal and state due process clause. Each has
different requirements, and therefore we will address them separately.
i. Federal Due Process Clause
Turning first to the federal constitution, the due process clause of the
Fourteenth Amendment provides that “[n]o State shall . . . deprive any person of life,
liberty, or property, without due process of law.” (U.S. Const. amend. XIV, § 1.)
Accordingly, “The first inquiry in every due process challenge is whether the plaintiff has
been deprived of a protected interest in ‘property’ or ‘liberty.’” (American Mfrs. Mut.
Ins. v. Sullivan (1999) 526 U.S. 40, 59.)
The Government argues Barri (or any lien claimant) cannot assert a federal
due process claim because there is no property interest in lien claims. We disagree.
Earlier in this opinion we reached the conclusion Barri does not necessarily have a
statutorily conferred benefit in receiving payment on a workers’ compensation lien. It is
not a fully owned asset. The right to payment is conditional and uncertain until there is a
final judgment in the injured worker’s claim. However, the basis for Barri’s federal
procedural due process challenge is not based on the benefit of receiving payment but
rests with his interest in litigating grievances.
In Logan v. Zimmerman Brush Co. (1982) 455 U.S. 422, 428-431 (Logan),
the United States Supreme Court held the right to use statutory adjudicatory procedures
provided by state law constitutes a type of property protected by the due process clause.
37
In that case, the court determined an employee was deprived of a protected property
interest when his claim under the Illinois Fair Employment Practices Act (FEPA) was
terminated due to a state official’s failure to follow certain procedures. (Id. at p. 424.)
The court held the employee’s statutory right to use FEPA’s adjudicatory procedures in
challenging his or her termination was protected by the due process clause. (Id. at pp.
430-431.) In reaching this conclusion, the Logan court noted, “a cause of action is a
species of property protected by the Fourteenth Amendment’s Due Process Clause.” (Id.
at p. 428.)
We see no meaningful distinction between the “right of access to the court”
to pursue a cause of action, from the right of access to an appropriate administrative
hearing to pursue a workers’ compensation claim. Both types of litigants wish to use
established adjudicatory procedures for their grievances to be heard. As noted by Barri,
long ago an appellate court in Kaiser Co. v. Industrial Acc. Com. (1952) 109 Cal. App. 2d
54, 57-58, held workers’ compensation administrative proceedings are protected property
interests under the federal due process clause. It determined the constitutional provision
authorizing the creation of WCAB (then called the Industrial Accident Commission)
allowed it to function as a court. (Id. at p. 57.) “‘Even if regarded as a purely
administrative agency, however, in exercising adjudicatory functions the commission is
bound by the due process clause of the Fourteenth Amendment to the United States
Constitution to give the parties before it a fair and open hearing. “The right to such a
hearing is one of ‘the rudiments of fair play’ [citation] assured to every litigant by the
Fourteenth Amendment as a minimal requirement.” [Citations.]’” (Id. at p. 58.)
Additionally, there are many decisions, including a California Supreme
Court case, holding the right to adjudicate lien claims is protected by our state due
process clause, and we find their reasoning applicable to federal due process. (See e.g.,
Charles J. Vacanti, M.D., Inc. v. State Comp. Ins. Fund (2001) 24 Cal. 4th 800, 811
(Vacanti) [lien claimants become parties in interest to WCAB proceedings and “receive[]
38
full due process rights, including an opportunity to be heard”]; Chorn v. Workers’ Comp.
Appeals Bd. (2016) 245 Cal. App. 4th 1370, 1387-1388 (Chorn) [plaintiff can challenge
procedural due process relating to newly enacted statute imposing workers’ compensation
lien filing fee]; Boehm & Associates v. Workers’ Comp. Appeals Bd. (2003) 108
Cal. App. 4th 137, 150 [“‘A lien claimant is entitled to a hearing on the merits of his or her
lien claim as a matter of procedural due process’”]; Hand Rehabilitation Center v.
Workers’ Comp. Appeals Bd. (1995) 34 Cal. App. 4th 1204, 1210; Beverly Hills
Multispecialty Group, Inc. v. Workers’ Comp. Appeals Bd. (1994) 26 Cal. App. 4th 789,
803; Fox v. Workers’ Comp. Appeals Bd. (1992) 4 Cal. App. 4th 1196, 1204-1205.) There
are also treatises that agree on this point. (Rassp et al., California Workers’
Compensation Law (7th ed. 2017) § 17.111[5], p. 17-63 [the lien claimant must be
accorded due process].)
To summarize, because the workers’ compensation statutory scheme gives
the WCAB exclusive jurisdiction over the creation, adjudication, and payment of liens, a
claimant has no other remedies available to recover payment for his or her services. The
statutory scheme currently gives lien claimants due process rights regarding efforts to
recover payments as a party to the adjudication of the injured worker’s claim. (See Cal.
Code Regs., tit. 8, § 10301, subd. (dd)(6) [lien claimant is a party]; § 10770.1 [lien
conference and trials].) The Government offers no reason why due process should not
also be timely afforded to a claimant challenging the AFU’s application of section 4615.
We conclude lien claimants have a protectable property interest in meaningful
participation in the workers’ compensation system.
ii. State Due Process Clause
“The due process clause of the California Constitution provides that ‘[a]
person may not be deprived of life, liberty, or property without due process of law . . . .’
(Cal. Const., art. I, § 7, subd. (a).) Analysis under this clause ‘differs from that conducted
pursuant to the federal due process clause in that the claimant need not establish a
39
property or liberty interest as a prerequisite to invoking due process protection.’
[Citation.] Although the aggrieved party need not establish a protected property interest,
he or she ‘must nevertheless identify a statutorily conferred benefit or interest of which
he or she has been deprived to trigger procedural due process under the California
Constitution . . . .’ [Citation.] ‘The “requirement of a statutorily conferred benefit limits
the universe of potential due process claims: presumably not every citizen adversely
affected by governmental action can assert due process rights; identification of a statutory
benefit subject to deprivation is a prerequisite.” [Citation.]’ [Citation.] The right to
workers’ compensation benefits is wholly statutory [citation], and, because lien
claimants’ rights to payment arise from the employee’s right to compensation [citation],
those rights too are statutory. Though such rights do not fully vest until they are reduced
to final judgment [citations], they nonetheless are conferred by statute and as such trigger
a right to procedural due process under the state Constitution [citation].” (Chorn, supra,
245 Cal.App.4th at pp. 1387-1388, italics added; citing Vacanti, supra, 24 Cal.4th at p.
811.)
As mentioned in the previous section, several other appellate courts have
considered state procedural due process challenges. (See e.g. Boehm & Associates v.
Workers’ Comp. Appeals Bd. (2003) 108 Cal. App. 4th 137, 150 [right to due process
“guarantees lien claimants a right to notice and to participate at trial”].) Despite the
above authority, the Government argues there can never be a state due process violation
related to worker’s compensation legislation. To support this theory, the Government
relies entirely on a single appellate decision from the First District, Division One,
Stevens, supra, 241 Cal. App. 4th 1074. We agree with Barri that the Government reads
Stevens too broadly.
The Stevens case considered workers’ compensation reform legislation that
went into effect in 2004 and was modified in 2013 to make “the system more efficient
and less costly by having injured workers’ requests for medical treatment evaluated
40
through a process called utilization review (UR).” (Stevens, supra, 241 Cal.App.4th at p.
1081, fn. omitted.) “[U]nder the UR process, workers can challenge decisions denying
requested treatment, but employers cannot challenge decisions approving it. . . . In 2013,
additional reforms went into effect that built off the 2004 legislation and established a
new procedure, independent medical review (IMR), to resolve workers’ challenges to UR
decisions.” (Id. at p. 1081, fns. omitted.) “A worker who disputes the IMR
determination may appeal it to the Board. (§ 4610.6, subd. (h).)” (Id. at p. 1091.) The
Board’s decision is subject to review in the appellate court. (Ibid.) An injured worker
challenged the constitutionality of the IMR process on state and federal due process
grounds.
The Stevens court rejected the worker’s claims for the following reasons. It
explained, “Under Section 4, the Legislature ‘is . . . expressly vested with plenary power,
unlimited by any provision of this Constitution, to create, and enforce a complete system
of workers’ compensation, by appropriate legislation.’ (Cal. Const., art. XIV, § 4, italics
added.) . . . [¶] . . . Our state Supreme Court has made clear that constitutional
amendments can be ‘understood as carving out an exception to the preexisting scope of
the . . . due process clause[] with respect to the particular subject matter encompassed by
the new provision.’ [Citation.] By giving the Legislature plenary powers over the
workers’ compensation system, [s]ection 4 modified the reach of the state Constitution’s
due process clause.” (Stevens, supra, 241 Cal.App.4th at pp. 1092-1093.)
It reasoned, “Section 4 ‘affirms the legislative prerogative in the workers’
compensation realm in broad and sweeping language’ and confers on the Legislature ‘the
power to “fix and control the method and manner of trial of any . . . dispute[s over
compensation for injury] [and] the rules of evidence [applicable to] the tribunal or
tribunals designated by it.”’ [Citation.] [¶] The Legislature’s broad power over workers’
compensation matters has been repeatedly affirmed. [Citations.] These cases confirm
that nearly any exercise of the Legislature’s plenary powers over workers’ compensation
41
is permissible so long as the Legislature finds its action to be ‘necessary to the
effectiveness of the system of workers’ compensation.’ [Citation.] Indeed, the only
limitations on the Legislature’s plenary powers, neither of which applies here, are that the
Legislature cannot act outside of its authority to create and to enforce a complete system
of workers’ compensation [citation], or, as we discuss below (in our analysis of the
workers’ federal due process claim) enact a provision that conflicts with federal law.”
(Stevens, supra, 241 Cal.App.4th at pp. 1094-1095, italics added.)
Thus, the court in Stevens recognized there were some limitations to the
power to legislate under section 4. The Legislature cannot carte blanche exercise its
plenary powers and create legislation (1) unnecessary to the workers’ compensation
system or that (2) conflicts with the federal due process clause. (See Hustedt v. Workers’
Comp. Appeals Bd. (1981) 30 Cal. 3d 329, 343 [section 4 “obviously does not envision
legislation” authorizing WCAB to discipline attorneys].)
On the first point, the Stevens court concluded the IMR legislation did not
conflict with “Section 4’s mandate that the workers’ compensation system provide
‘substantial justice in all cases expeditiously, inexpensively, and without incumbrance of
any character.’” (Stevens, supra, 241 Cal.App.4th at p. 1096.) The court noted the
Legislature determined the new system was necessary, furthered the State’s social policy
of providing quality medical care to injured workers care, and promoted substantial
justice. (Id. at p. 1096.)
On the second point, the Stevens court concluded the IMR process did not
violate federal principles of due process. (Stevens, supra, 241 Cal.App.4th at pp. 1096-
1097.) Assuming, but not deciding, IMR determination was a constitutionally protected
property interest, the court concluded the injured worker was “afforded ample process.”
(Id. at p. 1098.) “‘The core of due process is the right to notice and a meaningful
opportunity to be heard.’ [Citations.] . . . [W]orkers seeking treatment under California’s
42
scheme receive far more process, including through UR, than just that which is provided
in the IMR procedure.” (Ibid.)
It is interesting to note the Stevens opinion did not discuss Supreme Court
authority or any of the other cases that have evaluated the merits of state constitutional
challenges to various workers’ compensation statutes. (See Vacanti, supra, 24 Cal.4th at
p. 811; Chorn, supra, 245 Cal.App.4th at pp. 1387-1388.) Noticeably absent from the
Government’s briefing is any acknowledgement of the Vanguard case’s preliminary
injunction based on the legal conclusion the lien stay provision suffers from federal
procedural due process defects. As acknowledged in Stevens, “[T]he Legislature cannot
act outside of its authority to create . . . a provision that conflicts with federal law.”
(Stevens, supra, 241 Cal.App.4th at pp. 1094-1095.)
For all of the above reasons, we reject the Government’s theory the
Legislature’s plenary power (described in section 4) automatically eliminated all state
due process challenges. Because we have concluded lien claimants can allege a
deprivation of a protected interest as required by the federal constitution, and because the
purported violations are not automatically “trumped” by section 4, we next “look to see if
the State’s procedures comport with due process.” (Today’s Fresh Start, Inc. v. Los
Angeles County Office of Education (2013) 57 Cal. 4th 197, 214 (Fresh Start).)
“‘[O]nce it is determined that the Due Process Clause applies, “the question
remains what process is due.’” [Citations.]” (Fresh Start, supra, 57 Cal.4th at p. 214.)
Barri challenges the stay procedures in three respects: (1) inadequate notice to
noncharged entities; (2) no right to a hearing regarding AFU’s flagging decision to
correct mistakes in application of section 4615; and (3) no right to a hearing to adjudicate
whether a particular lien is tainted or untainted.
C. Notice
“What safeguards comport with due process or what due process requires
under specific circumstances varies, as not every context to which the right to procedural
43
due process applies requires the same procedure. The primary purpose of procedural due
process is to provide affected parties with the right to be heard at a meaningful time and
in a meaningful manner. Consequently, due process is a flexible concept, as the
characteristic of elasticity is required in order to tailor the process to the particular need.
[Citations.] Thus, not every situation requires a formal hearing accompanied by the full
rights of confrontation and cross-examination. [Citation.] ‘What due process does
require is notice reasonably calculated to apprise interested parties of the pendency of
the action affecting their property interest and an opportunity to present their objections.
[Citation.]’” (Ryan v. California Interscholastic Federation-San Diego Section (2001) 94
Cal. App. 4th 1048, 1072, italics added.)
Barri’s first procedural due process argument concerning the lien stay
provision relates to notice. In the petition, he asserted the Government had no procedures
or mechanism in place for noncharged entities to receive notice their liens have been
stayed. Moreover, it was unclear what criteria AFU was using to “flag” the liens of
noncharged entities. We conclude the lack of notice claim has been rendered moot.
Six months after Barri filed his petition, and not long after the Vanguard
preliminary injunction order, the Government updated its website to include a list of
“flagged” noncharged entities. In addition, Barri’s petition predated the Governor’s
clean-up legislation (AB 1422), which clarified noncharged providers’ liens will be
stayed if “controlled” by the criminally charged provider. (§ 4615 [lien stay provision].)
The new legislation stated, “For purposes of [section 139.21] and [the lien stay
provision], an entity is controlled by an individual if the individual is an officer or a
director of the entity, or a shareholder with a 10 percent or greater interest in the entity.”
(§ 139.21, subd. (a)(3).) By defining the term “controlled,” there is no longer speculation
44
about the criteria used before the Government adds a noncharged entity to the list posted
6
on its website. Barri’s complaints regarding notice deficiencies have been remedied.
Before moving on, we wish to address an issue Barri raised in supplemental
briefing regarding the clean-up legislation. He asserted the new definition describing
when an entity is controlled created new constitutional problems. He argued the
definition was broadly written and, therefore, could potentially include innocent
providers. The Government responded by stating the definition was modeled on Welfare
and Institutions Code section 14123, governing provider suspensions for Medi-Cal, and
appropriately clarified the criteria that should be used to stay noncharged entities’ liens.
It failed to cite any case authority holding the definition, in either statute, was
constitutionally sound.
In later briefing, Barri repeated his argument but did not ask this court to
take judicial notice of any evidence relating to this new issue. The Government
submitted Kim’s declaration, in which she explained past workers’ compensation fraud
cases have revealed that “most often” the individual medical provider is convicted, “not
the medical entity through which the [convicted provider] operated and through which,
often, liens were filed in the workers’ compensation system.” She maintained there was
little risk the stay would be applied to entities in which the convicted provider has not
actively managed or controlled. The Government argued there was sound public policy
for the Legislature’s definition of “controlled entit[ies].”
6
In supplemental briefing, Barri complains the updated website does not tell
noncharged entities the name of the criminally charged provider controlling the entity.
This is true. It is conceivable some noncharged entities may be unclear as to why its liens
were flagged. We hope the Government will soon remedy this obvious deficiency, but it
cannot be said this defect means the noncharged entity was deprived notice as required by
the due process clause. The website adequately apprises noncharged entities of the action
affecting their property interest.
45
We agree with the Government’s second argument that even if the
definition might be overbroad as applied in some circumstances, this conclusion would
not be grounds to find the antifraud legislation unconstitutional. “‘“To support a
determination of facial unconstitutionality, voiding the statute as a whole, petitioners
cannot prevail by suggesting that in some future hypothetical situation constitutional
problems may possibly arise as to the particular application of the statute . . . . Rather,
petitioners must demonstrate that the act’s provisions inevitably pose a present total and
fatal conflict with applicable constitutional prohibitions.”’ [Citations.]” (Tobe v. City of
Santa Ana (1995) 9 Cal. 4th 1069, 1084.) Barri has not shown the law is unconstitutional
in all circumstances (facial challenge) or has been actually applied in an
unconstitutionally impermissible manner (as applied challenge).
D. The Right to be Heard
Barri’s second procedural due process argument concerns the opportunity
to be heard. Specifically, he maintains there is no mechanism to complain a lien was
improperly flagged or dispute whether the proper criteria was met for the stay. Barri also
contends claimants should be able to adjudicate whether the lien is tainted before the
criminal case has concluded. Because there are procedures in place to litigate flagging
mistakes, but no hearing available for the latter type dispute, we will address these
procedural due process arguments separately.
Mathews v. Eldridge (1976) 424 U.S. 319, 335 (Mathews), provides a court
should consider three factors when determining whether a given administrative procedure
meets “the specific dictates of due process” for depriving an individual of an interest:
“First, the private interest that will be affected by the official action; second, the risk of
an erroneous deprivation of such interest through the procedures used, and the probable
value, if any, of additional or substitute procedural safeguards; and finally, the
Government’s interest, including the function involved and the fiscal and administrative
burdens that the additional or substitute procedural requirement would entail. [Citation.]”
46
Unlike the suspension provision, the lien stay provision does not contain
any specific information regarding what procedural due process should be afforded lien
claimants until after the criminal case ends. There is no hearing associated with
imposition of the lien. The stay is automatic. There are no procedures calling for a
hearing or WCJ order imposing the stay. There is no dispute that once “flagged” on the
Government’s website, the lien claimant is precluded from moving forward as a party
wishing to adjudicate the lien. The statute does not give WCJs any authority or discretion
to grant exceptions.
The only right to a hearing mentioned in the statute takes place after the
criminal case concludes. At that time, the criminally convicted provider and noncharged
entity are entitled to a special procedure for adjudicating the validity of the entire
collection of stayed liens, i.e., a determination if the liens are tainted or untainted.
Barri contends claimants must be afforded a timely opportunity to be heard
about mistakes relating to an automatically stayed lien. Judge Wu issued the preliminary
injunction based on the conclusion a medical provider and noncharged entity could both
have legitimate challenges regarding an erroneous application of the lien stay provision.
We agree lien claimants have a protectable private interest in a timely review of cases
involving misidentification or misapplication of section 4615 criteria. The first Mathews
factor is satisfied.
As for the second Mathews factor, it should not be overlooked the statute
itself recognized procedures should be developed to avoid the risk of an erroneous
deprivation. The original version of the lien stay provision provided “[t]he administrative
director may adopt rules for the implementation of this section.” (§ 4615, subd. (f),
italics added.) The amended version clarified the WCAB “is not precluded” from
considering “whether a lien is stayed” properly or whether a noncharged provider is
“controlled by” a charged provider. Although the clean-up legislation clarified that the
WCAB should develop procedures to address whether a lien was properly stayed, the
47
Government was slow to respond. To date the administrative director has not publically
announced new rules for implementation of the lien stay provision. However, more
recently WCJ’s have reconfigured existing procedures to allowed claimants with stayed
7
(but unripe) liens to be heard on a few limited procedural issues. It is undisputed there
are currently over one hundred lien conferences/trials scheduled to address complaints
regarding the AFU’s application of section 4615.
The second Mathews factor also involves consideration of “the risk of an
erroneous deprivation of such interest through the procedures used, and the probable
value, if any, of additional or substitute procedural safeguards.” (Mathews, supra, 424
U.S. at p. 335.) This factor was more relevant when Barri filed his petition. However, in
light of the Government’s decision to afford claimants a hearing, the risk of erroneous
deprivation has been somewhat curtailed. The Government concedes its “flagging”
system is not infallible, but AFU has developed a method of review to minimize the risk
of mistakes or misidentifications. Kim declared any mistakes may be informally brought
to the attention of the AFU’s staff for reevaluation, or formally considered by a WCJ in
an evidentiary hearing. Barri does not suggest what additional or substitute procedural
safeguards should be put in place.
Instead, Barri’s argument focuses on the evidence showing claimants have
been experiencing unnecessary delays when seeking to correct AFU’s mistakes before a
WCJ. He provided evidence the process of bringing the matter before a WCJ is overly
expensive and hearings are often delayed for the improper purpose of notifying a
nonparty (AFU), or to allow the WCJ to collect evidence from the AFU that supports its
flagging decision.
7
We appreciate the WCJs who have taken steps towards the important goal
of applying the new anti-fraud legislation in a way that will be consistent with the state
and federal constitutional right to be heard in a meaningful time and manner.
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While there may be more efficient ways to notify the AFU of hearings, and
a more timely method to transmit supporting documentation to the WCJs, it cannot be
said a claimant’s due process rights are violated by these actions. To the contrary,
“Based on the constitutional mandate to accomplish substantial justice, the WCJ has a
duty to develop an adequate record. [Citations.]” (Kuykendall v. Workers’ Comp.
Appeals Bd. (2000) 79 Cal. App. 4th 396, 403.) “[I]t is well established that the WCJ or
the Board may not leave undeveloped matters which it acquired specialized knowledge
should identify as requiring further evidence. [Citations.]” (Id. at p. 404.) WCJs are not
bound by “the common law or statutory rules of evidence and procedure” and may
consider oral testimony and records “best calculated to ascertain the substantial rights of
the parties and carry out justly the spirit and provisions of this division.” (§ 5708.)
Weighing the second factor in the due process analysis, we conclude lien claimants are
being given a meaningful opportunity to present their case. An evidentiary hearing is
certainly an adequate forum to correct any erroneous application of section 4615.
The third factor is the public interest in section 4615. The Legislature
explained it enacted the anti-fraud legislation to address several important public
concerns. (See Stats. 2016, ch. 868, § 16.) Specifically, the legislation promotes the
Government’s interest in protecting the public against medical providers who engage in
misconduct. In addition, it helps the Government regain public confidence in the
workers’ compensation system by halting the appalling funding of fraudulent practices
while there are pending criminal proceedings. The legislature believed that by
maintaining the status quo during a criminal proceeding, they could alleviate the
excessive and unnecessary burdens created by fraudulent liens processed in the workers’
compensation system.
Weighing the above three factors, we conclude the Government adequately
provides claimants a meaningful opportunity to present their cases before a WCJ to
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address proper application of section 4615. Due process requires no more. Accordingly,
we conclude there is no due process violation.
Turning to Barri’s final procedural due process claim, we reach the same
conclusion but for a different reason. Barri maintains claimants have the right to be heard
on the propriety of the medical provider’s criminal case and/or whether the lien is tainted
by criminal misconduct. As stated, the statute specifically provides for a hearing on these
issues when the criminal case has been completed. Barri is suggesting due process
requires an earlier evidentiary hearing, duplicating the one concurrently being held in the
criminal courts. We disagree.
“‘[T]he extent to which due process [protections] will be available depends
on a careful and clearly articulated balancing of the interests at stake in each context.”
(Mohilef v. Janovici (1996) 51 Cal. App. 4th 267, 286.) Typically, crimes involving
workers’ compensation fraud involve multiple parties and entities, having numerous
liens, creating the potential for thousands of individual lien trials/hearings each on the
issue of whether one particular lien is tainted or untainted. To determine whether the lien
is tainted before completion on the criminal trial would create a very high fiscal and
administrative burden on the Government, with nothing to gain but the confusion created
by the possibility of conflicting judgments in two forums. The mountain of evidence
typically gathered by the district attorney in prosecuting complex fraud criminal cases
would have to be introduced in each lien trial, overloading already burdened WCJs. The
statute’s provision for a special consolidated lien hearing, following the criminal trial,
avoids conflicting orders and promotes judicial economy.
Contrary to Barri’s contention, it is not feasible to determine which liens
are tainted or untainted until after a criminal conviction, where there is a final factual
determination on the scope of the provider’s misconduct and fraudulent practices. To
allow a WCJ to lift the stay before the benefit of having a criminal disposition would be
contrary to the legislative intent to stop payment on ill-gotten liens and lessen the fiscal
50
and administrative burdens created by these liens. Due process does not require an
abridged criminal trial heard by a WCJ or WCAB before completion of the actual
criminal trial. The statute provides claimants adequate due process to litigate their
untainted liens following the criminal conviction.
IV. Ex Post Facto Clause
Barri complains the suspension and special lien preceding provisions
contained in section 139.21 represent a significant change to the worker’s compensation
laws that cannot be applied retroactively. Barri explains he entered a guilty plea six
months before the Legislature enacted the anti-fraud legislation. He asserts the new laws
should not concern him or any other lien claimants sustaining criminal convictions before
the statute’s enactment because application violates the ex post facto clauses of the
Federal Constitution (U.S. Const., art. I, § 10, cl. 1) and of the California Constitution
(Cal. Const., art. I, § 9).
The ex post facto clause of the California Constitution is to be analyzed
identically to that of the United States Constitution. (People v. McVickers (1992) 4
Cal. 4th 81, 84 (McVickers).) “The United States Supreme Court has recently restructured
its analysis of the ex post facto clause. As now interpreted, the clause prohibits three
legislative categories: legislation ‘“[1] which punishes as a crime an act previously
committed, which was innocent when done; [2] which makes more burdensome the
punishment for a crime, after its commission, or [3] which deprives one charged with
crime of any defense available according to law at the time when the act was committed
. . . .”’ [Citations.] The court, returning the clause to its historical roots, overruled a line
of prior cases holding that a law violates the ex post facto clause if it eliminates a
‘substantial protection’ in place when the offense was committed. (Ibid.)
We agree with the parties that the plain language of section 139.21
indicates the legislative intent was to include providers who had previously been
convicted of crimes before passage of the statute. The Legislature selected a past verb
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tense when defining the scope of medical providers covered by the statute. Their
decision to include any provider who “has been” convicted refers to criminals in the same
situation as Barri. This interpretation supports the Legislative intent of this anti-fraud
legislation to stop criminals from misusing the workers compensation system, not just
those medical providers who have been recently caught and are awaiting trial.
Although section 139.21 applies retroactively, we conclude it does not
violate Barri’s ex post facto rights. “In an unbroken chain of cases, our Supreme Court
and the United States Supreme Court have held that the ex post facto prohibition applies
only to criminal statutes. (See, e.g., Conservatorship of Hofferber (1980) 28 Cal. 3d 161,
180 [“The ex post facto clauses (U.S. Const., art. I, § 9, cl. 3; Cal. Const., art. I, § 9)
apply only to penal statutes”] . . . .)” (People v. 25651 Minoa Dr. (1992) 2 Cal. App. 4th
787, 795 (25651 Minoa).)
Section 139.21 is not a criminal statute. Its primary purpose is to stop and
protect against further abuses of an overburdened workers’ compensation system, and
protect injured workers and the public. (Stats. 2016, ch. 868, § 16.) The suspension
provision is not located in the Penal Code, but is listed as part of one of the Labor Code’s
workers’ compensation proceedings. Unlike all other types of punishment, a suspension
is not automatic or immediately imposed following a conviction. (§ 139.21, subd. (a)
[“promptly suspend” following notice and hearing].) A convicted medical provider may
ask “the administrative director” for a hearing, and after those proceedings, the “hearing
officer” may ultimately decide against suspension. (§ 139.21, subd. (b).)
We reject Barri’s assertion the suspension and special lien hearing are
really criminal proceedings hidden under a “civil label.” We find instructive Smith v.
Doe (2003) 538 U.S. 84, 92. The Supreme Court in Smith considered for the first time
whether the sex offender registration and notification law constituted retroactive
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punishment forbidden by the ex post facto clause. (Id. at p. 92.) “The framework for our
inquiry . . . is well established. We must ‘ascertain whether the legislature meant the
statute to establish “civil” proceedings.’ [Citation.] If the intention of the legislature was
to impose punishment, that ends the inquiry. If, however, the intention was to enact a
regulatory scheme that is civil and nonpunitive, we must further examine whether the
statutory scheme is ‘“so punitive either in purpose or effect as to negate [the State’s]
intention” to deem it “civil.”’ [Citations.] Because we ‘ordinarily defer to the
legislature’s stated intent,” [citation], ‘“only the clearest proof” will suffice to override
legislative intent and transform what has been denominated a civil remedy into a criminal
penalty,’ [citations].” (Ibid.) Thus, whether the workers’ compensation statutory
provisions regarding stays and suspensions are civil or criminal is a matter of statutory
construction. “We consider the statute’s text and its structure to determine the legislative
objective. [Citation.]” (Ibid.)
In this case, the Legislature clearly stated its intention was to enact a civil
regulatory scheme and remedy. The uncodified section of SB 1160 plainly expressed the
Legislature was exercising its plenary power (section 4 of Article XIV), to enact two
related statutes designed to protect an overburdened workers’ compensation system from
the administrative strain of continuing to process liens eventually dismissed due to
criminal convictions and from making payments on unlawful liens for fraudulent medical
services. In short, they exerted their plenary power to create a civil regulatory scheme
designed to prevent the unnecessary processing and payment on liens tainted by fraud
and other misconduct.
The legislators stated, “The ability of providers . . . to continue to file and
to collect on liens, while criminal charges are pending against the provider, including
through the use of lien for collection assignments, has created excessive and unnecessary
administrative burdens for the workers’ compensation system, has resulted in pressure on
employers and insurers to settle liens that may in fact have arisen from prior or ongoing
53
criminal conduct, has threatened the health and safety of workers who may be referred
for or receive medical treatment or other medical-legal services that are not reasonable
and necessary, has allowed continued funding of fraudulent practices through ongoing
lien collections during the pendency of criminal proceedings, and has undermined public
confidence in the workers’ compensation system.” (Stats. 2016, ch. 868, § 16.) This
plainly articulated legislative objective is the “clearest proof” section 139.21 represents a
civil remedy. It was not intended to serve as additional punishment to a lien claimant.
The legislation at issue is similar to the statutes discussing the
administrative proceedings to revoke, suspend, or impose discipline on professional
license following wrongful conduct. (Hughes v. Board of Architectural Examiners
(1998) 17 Cal. 4th 763, 785-786 [architect disciplinary proceedings not punishment but
designed to protect public].) Those statutes have been repeatedly deemed “noncriminal
and nonpenal” because their purpose is to protect the public. (Griffiths v. Superior Court
(2002) 96 Cal. App. 4th 757, 768-769 [physician discipline following misdemeanor
conviction not designed to punish licensee but rather for public protection].)
Asset forfeiture laws have also been deemed civil in nature. (25651 Minoa,
supra, 2 Cal.App.4th at pp. 795-797 [asset forfeiture provision not subject to prohibition
against ex post facto laws].) “Most significant is that [asset forfeiture statutes], while
perhaps having certain punitive aspects, serve important nonpunitive goals. . . .
Requiring the forfeiture of property used to commit federal narcotics violations
encourages property owners to take care in managing their property and ensures that they
will not permit that property to be used for illegal purposes.” (United States v. Ursery
(1996) 518 U.S. 267, 290.) Similarly, the anti-fraud legislation at issue may have some
punitive aspects, but it primarily serves important nonpunitive goals.
DISPOSITION
We decline the petitioner’s request to issue a peremptory or alternative writ
of mandate, prohibition, or other relief directing the WCAB to adjudicate the stayed liens
54
and not enforce the newly enacted anti-fraud legislation (§§ 4516 & 139.21). The parties
are to bear their own costs associated with petitioning this court.
O’LEARY, P. J.
WE CONCUR:
MOORE, J.
IKOLA, J.
55
Filed 10/19/18
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
MICHAEL E. BARRI et al.,
Petitioners,
v. G054838
THE WORKERS’ COMPENSATION
APPEALS BOARD,
ORDER
Respondent.
The California Workers’ Compensation Institute has requested that our
opinion filed September 21, 2018, be certified for publication. It appears that our opinion
meets the standards set forth in California Rules of Court, rule 8.1105(c)(4), (c)(6), and
(c)(7). The request is GRANTED.
The opinion is ordered published in the Official Reports.
O’LEARY, P. J.
WE CONCUR:
MOORE, J.
IKOLA, J.
56