Stavenjord v. Montana State Fund , 334 Mont. 117 ( 2006 )

No. 04-737
IN THE SUPREME COURT OF THE STATE OF MONTANA
2006 MT 257
DEBRA STAVENJORD,
Petitioner and Appellant,
v.
MONTANA STATE FUND,
Respondent and Cross-Appellant.
APPEAL FROM: The Montana Workers’ Compensation Court,
WWC 2000-0207,
Honorable Mike McCarter, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Thomas J. Murphy, Murphy Law Firm, Great Falls, Montana
For Respondent:
Bradley J. Luck, Thomas J. Harrington, Garlington, Lohn &
Robinson, PLLP, Missoula, Montana
David Hawkins, Montana State Fund, Helena, Montana
Heard on Oral Argument: October 26, 2005
Decided: October 6, 2006
Filed:
__________________________________________
Clerk
Justice Patricia O. Cotter delivered the Opinion of the Court.
¶1 Both parties appeal from an Order of the Workers’ Compensation Court (WCC)
related to common fund attorney fees and retroactive application of our ruling in
Stavenjord v. Montana State Fund, 2003 MT 67, 314 Mont. 466, 67 P.3d 229 (Stavenjord
I). In Stavenjord I, we affirmed the WCC’s determination that: (1) application of § 39-
72-405(2), MCA (1997), to Debra Stavenjord’s claim against Montana State Fund (State
Fund) violated her constitutional equal protection rights, and (2) Stavenjord should
receive benefits related to her occupational disease equal to benefits she would have
received had she been injured. On remand in the WCC, State Fund paid Stavenjord’s
additional benefits. Stavenjord then sought retroactive application of Stavenjord I, and
the recovery of common fund attorney fees for Stavenjord-type benefits secured by non-
participating claimants. The WCC ordered partial retroactive application of Stavenjord I,
and common fund attorney fees for claims arising within the period of retroactivity.
Stavenjord appeals. State Fund cross-appeals. We reverse and remand.
ISSUES
¶2 The restated issues on appeal and cross-appeal are:
1. Whether Stavenjord I applies retroactively to open claims arising on or after June 30,
1987.
2. Whether the WCC erroneously applied the date of maximum medical improvement as
the entitlement date for retroactivity purposes.
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3. Whether the WCC erroneously concluded that Stavenjord I created a common fund
entitling Stavenjord’s counsel to collect common fund fees from non-participating
claimants who benefit from the decision.
4. Whether the WCC erroneously concluded that Stavenjord’s counsel timely asserted a
claim for common fund attorney fees.
FACTUAL AND PROCEDURAL BACKGROUND
¶3 We first addressed Stavenjord’s case in Stavenjord I, and refer the reader to that
case for the factual background leading to this appeal. Additionally, the parties stipulated
to facts on which the WCC relied during Stavenjord I remand proceedings, and which we
reference below as necessary.
¶4 In Stavenjord I we held that certain provisions of the Occupational Disease Act
(ODA) violate the equal protection clause of the Montana Constitution because workers
who suffer from an occupational disease received lesser permanent partial disability
(PPD) benefits than workers who are injured on the job receive under the Workers’
Compensation Act (WCA). ¶ 48. We concluded that § 39-72-405(2), MCA (1997), was
unconstitutional as applied to Stavenjord. Stavenjord I, ¶ 48.
¶5 As a result of post-remand proceedings, the WCC determined that partial
retroactive application of Stavenjord I was appropriate, but only for claims arising on or
after June 3, 1999. Further, the WCC found that a common fund had been created by
Stavenjord I, and therefore Stavenjord’s counsel was entitled to common fund attorney
fees from non-participating PPD claimants benefiting from counsel’s work on
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Stavenjord’s behalf. On August 27, 2004, the WCC issued the Order from which the
parties appeal.
STANDARD OF REVIEW
¶6 We review the WCC’s conclusions of law to determine whether they are correct.
Schmill v. Liberty Northwest Ins. Corp., 2005 MT 144, ¶ 11, 327 Mont. 293, ¶ 11, 114
P.3d 204, ¶ 11 (Schmill II).
DISCUSSION
ISSUE ONE
¶7 1. Whether Stavenjord I applies retroactively to open claims arising on or after
June 30, 1987.
¶8 Stavenjord contends the WCC erred when it restricted retroactive application of
our ruling in Stavenjord I to open claims arising on or after June 3, 1999, and that the
decision should apply to cases arising on or after June 30, 1987. State Fund responds that
Stavenjord I applies prospectively only. Alternatively, State Fund argues the WCC
correctly limited the scope of Stavenjord I’s retroactive application to cases arising on or
after June 3, 1999. In addition, regarding retroactive application of Stavenjord I, State
Fund urges this Court to limit application of the ruling to “cases pending on direct
review.” We therefore must decide whether Stavenjord I applies retroactively to
workers’ claims for PPD benefits related to occupational diseases, and if so, to what
extent.
¶9 There exists a strong presumption in favor of retroactive application of new rules
of law. Dempsey v. Allstate Ins. Co., 2004 MT 391, ¶ 15, 325 Mont. 207, ¶ 15, 104 P.3d
4
483, ¶ 15. In Dempsey, we reaffirmed our general rule that “we give retroactive effect to
judicial decisions,” while allowing for “an exception to that rule when faced with a truly
compelling case for applying a new rule of law prospectively only.” Dempsey, ¶ 29
(citation omitted). Recently, we concluded that we would recognize an exception to
retroactive application of this Court’s rulings only when all three factors first articulated
by the U.S. Supreme Court in Chevron are met. Schmill II, ¶ 13, referencing Chevron Oil
Co. v. Huson, 404 U.S. 97, 92 S. Ct. 349 (1971). In Dempsey, we said that Chevron’s
guidelines for evaluating the efficacy of prospective application of this Court’s
jurisprudence remain “viable as an exception to the rule of retroactivity.” Dempsey, ¶ 30.
(See Dempsey, ¶¶ 21-31 for a temporal overview of Chevron’s application in federal and
Montana state courts.)
¶10 To overcome the strong presumption favoring retroactivity, the Chevron exception
requires:
First, that the decision to be applied [prospectively] must establish a new
principle of law, either by overruling clear past precedent on which litigants
may have relied or by deciding an issue of first impression whose
resolution was not clearly foreshadowed. Second, it has been stressed that
“we must . . . weigh the merits and demerits in each case by looking to the
prior history of the rule in question, its purpose and effect, and whether
retrospective operation will further or retard its operation.” Finally, we
have weighed the inequity imposed by retroactive application, for “where a
decision of this Court could produce substantial inequitable results if
applied retroactively, there is ample basis in our cases for avoiding the
‘injustice or hardship’ by a holding of [prospective application].”
Schmill II, ¶ 13, citing Dempsey, ¶ 21, quoting Chevron, 404 U.S. at 106-07, 92 S.Ct. at
355. Only twice has application of Chevron and its progeny resulted in a purely
prospective application of this Court’s rulings on questions of state law. See Ereth v.
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Cascade County, 2003 MT 328, 318 Mont. 355, 81 P.3d 463, and Seubert v. Seubert,
2000 MT 241, 301 Mont. 382, 13 P.3d 365, both of which predated the exhaustive
analysis of the question of retroactivity published in Dempsey, and addressed again in
Schmill II. Moreover, prospective application in both cases rested on cursory analyses of
the Chevron factors. In any event, our decisions in Dempsey and Schmill II have now
resolved any uncertainty there might have been regarding proper application of the
Chevron factors in a retroactivity analysis.
¶11 Here, the WCC applied the Chevron factors and ultimately ordered partial
retroactive application of Stavenjord I to open claims arising on or after June 3, 1999, but
declined to order application of Stavenjord I to claims arising between June 30, 1987, and
June 3, 1999. At the time the WCC wrote its Order, it did not have the benefit of
Dempsey or Schmill II; accordingly, it relied instead upon patently misleading dicta from
Poppleton for the proposition that “The general rule is that a rule of law will not be
applied retroactively if any of the [Chevron] factors . . . are present.” Poppleton v.
Rollins, Inc., 226 Mont. 267, 271, 735 P.2d 286, 289 (1987) (emphasis and bracketed
material in WCC August 27, 2004 Order). 1 However, as we clarified in Dempsey and
Schmill II, it is now well-settled that a party arguing for purely prospective application of
this Court’s jurisprudence must show that all three factors of the Chevron test are met.
Dempsey, ¶ 31; Schmill II, ¶ 13.
1 This misstatement of the Chevron test from Poppleton was dicta, because we in fact determined
the Poppleton ruling applied retroactively.
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¶12 We turn now to the question of whether the Chevron exception applies here. First,
we must determine whether Stavenjord I established a new principle of law, either by
overruling clear past precedent on which litigants may have relied, or by deciding an
issue of first impression whose resolution was not clearly foreshadowed. Schmill II, ¶ 13;
Dempsey, ¶ 21.
¶13 Before Stavenjord I, this Court had not considered the constitutionality of
disparate PPD benefits awarded under the ODA as opposed to the WCA; thus, Stavenjord
I decided an issue of first impression. However, our ruling in Stavenjord I was clearly
foreshadowed by our decision in Henry v. State Compensation Ins. Fund, 1999 MT 126,
294 Mont. 449, 982 P.2d 456. In Henry, we held:
In sum, we can see no rational basis for treating workers who are injured
over one work shift differently from workers who are injured over two
work shifts. . . . We conclude that providing rehabilitation benefits to
workers covered by the WCA, but not to workers covered by the ODA, is
not rationally related to the legitimate governmental interest of returning
workers to work as soon as possible after they have suffered a work-related
injury. We hold that the ODA violates the equal protection clause of the
Montana Constitution to the extent that it fails to provide vocational
rehabilitation benefits. ¶¶ 44-45.
While the benefit at issue in Henry—rehabilitation benefits—differed from the PPD
benefits of concern in Stavenjord I, in all other respects related to our analysis of equal
protection for similarly situated workers, Henry and Stavenjord I parallel one another. In
both cases, State Fund argued the two classes of workers seeking benefits—specifically
(1) injured workers and (2) workers suffering from occupational disease—were not
similarly situated under the law. Henry, ¶ 28, and Stavenjord I, ¶ 12. In Henry, we said:
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The State Fund misses the point. Regardless of the number of days or the
mechanism by which a worker incurs an affliction, the fact remains that
both classes of individuals have suffered work-related injuries, are unable
to perform their former jobs, and need rehabilitation benefits to return to
work. Both workers have as their sole source of redress the WCA or the
ODA. . . . We conclude that the classes are similarly situated for equal
protection purposes. ¶ 28.
The outcome of State Fund’s subsequent argument that Stavenjord, a worker who
suffered an occupational disease seeking redress under the ODA, was not similarly
situated to injured workers seeking redress under the WCA, was plainly presaged.
¶14 Therefore, we conclude that the issue of first impression decided in Stavenjord I
was, in the vernacular of Dempsey and Schmill II, “clearly foreshadowed.”
Consequently, the first of the three factors required to invoke Chevron’s exception to
presumed retroactivity is not met. On this determination alone we could conclude that
retroactive application of Stavenjord I is proper. Nonetheless, we note that analysis
under Chevron’s second requirement also favors retroactive application. As articulated
by the WCC, “Applying the decision retroactively promotes the rule of law announced in
the decision by assuring that all persons denied their constitutional rights are treated
equally.” Chevron requires us to “weigh the merits and demerits in each case by looking
to the prior history of the rule in question, its purpose and effect, and whether
retrospective operation will further or retard its operation.” Schmill II, ¶ 13 (citations
omitted). The purpose and effect of our ruling in Stavenjord I is clearly to provide equal
protection under the law to partially disabled workers, regardless of whether they suffer
an injury or from an occupational disease. Restricting Stavenjord I’s application to
claims arising after our decision in that case furthers neither the purpose nor the effect of
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our ruling. We see no justification for creating an “arbitrary distinction between litigants
based merely on the timing of their claims.” Dempsey, ¶ 28. Therefore, we conclude that
Chevron’s second factor is not met. Accordingly, our decision in Stavenjord I will be
applied retroactively subject to the limitations set forth below.
¶15 Next, we analyze whether the WCC’s decision to order “partial” retroactive
application of Stavenjord I was correct. We conclude it was not. There is no legal
authority for “partial” retroactive application of Stavenjord I. The Chevron exception
does not allow for “partial” retroactivity. Either Chevron’s factors are met—in which
case prospective application is justified—or they are not. It bears repeating that this
Court reserves the Chevron exception for “truly compelling” cases where retroactive
application of a new rule would obfuscate justice. Here, State Fund has not cleared
Chevron’s hurdle, and therefore Stavenjord I applies to any and all open claims arising
on or after June 30, 1987, the date on which the offending statute, § 39-72-405(2), MCA
(1997), took effect. For these purposes, “open claims” will encompass those which are
still actionable, in negotiation but not yet settled, now in litigation, or pending on direct
appeal.
¶16 Conversely, Stavenjord I does not apply to occupational disease-related PPD
claims that became final by way of settlement or judgment prior to the issuance of this
opinion. “New legal principles, even when applied retroactively, do not apply to cases
already closed.” Dempsey, ¶ 28, quoting Reynoldsville Casket Co. v. Hyde, 514 U.S. 749,
758, 115 S. Ct. 1745, 1751 (1995). In Dempsey, we weighed the interests of fairness
against the need for finality in retroactive application of new rules, noting that
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prospective application “creates an arbitrary distinction between litigants based merely on
the timing of their claims” and concluding that “the line should be drawn between claims
that are final and those that are not . . . .” ¶ 28. Therefore, we conclude that the WCC
erred in ordering only partial retroactive application of Stavenjord I to cases arising on or
after June 3, 1999. Rather, Stavenjord I shall apply retroactively to those claims arising
on or after June 30, 1987, which remain “open” as herein defined. Occupational disease-
related claims for PPD benefits previously finalized and closed by either court order, or
settlement and release, may not be reopened for consideration under Stavenjord I or this
Opinion.
ISSUE TWO
¶17 2. Whether the WCC erroneously applied the date of maximum medical
improvement as the entitlement date for retroactivity purposes.
¶18 In light of our disposition of Issue One, we need not address this issue.
ISSUE THREE
¶19 3. Whether the WCC erroneously concluded that Stavenjord I created a common
fund entitling Stavenjord’s counsel to collect common fund fees from non-participating
claimants benefiting from the decision.
¶20 On cross-appeal, State Fund argues the WCC erred in concluding that Stavenjord I
created a common fund. State Fund urges this Court to place judicial constraints on the
common fund doctrine in the interests of policies underlying the WCA. Further, State
Fund argues the common fund doctrine does not apply to every case in which a claimant
receives a favorable ruling from this Court which may impact other claims. Stavenjord
responds that application by the WCC of the common fund doctrine was correct, as the
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doctrine provides the best available method for delivering unpaid PPD benefits to non-
participating Stavenjord beneficiaries. Stavenjord further contends that she “easily” met
the elements necessary for creating a common fund, and therefore her counsel is entitled
to recover attorney fees from non-participating beneficiaries of the common fund in
accordance with the common fund doctrine.
¶21 Generally, Montana follows the American Rule which obligates each party to civil
actions to pay her own attorney fees unless statute, contract, or equity allows otherwise.
Mountain West Farm Bureau v. Hall, 2001 MT 314, ¶ 13, 308 Mont. 29, ¶ 13, 38 P.3d
825, ¶ 13. This Court recognizes the common fund doctrine as an equitable exception to
the American Rule. See Means v. Montana Power Co., 191 Mont. 395, 403, 625 P.2d 32,
37 (1981) (expressly adopting common fund doctrine in Montana). The common fund
doctrine is “rooted in the equitable concepts of quasi-contract, restitution and recapture of
unjust enrichment,” and aimed at properly compensating active litigants and their counsel
whose efforts result in correcting an injustice and creating a fund in which other non-
participating beneficiaries maintain an interest. Means, 191 Mont. at 403, 625 P.2d at 37.
¶22 Since the common fund doctrine’s creation and earliest applications in Trustees v.
Greenough, 105 U.S. 527 (1882), and Central Railroad & Banking Co. v. Pettus, 113
U.S. 116, 5 S. Ct. 387 (1885), the United State Supreme Court has recognized consistently
that a litigant or a lawyer who recovers a common fund for the benefit of other persons is
entitled to recovery of fees from the whole, therein preventing inequity by spreading fees
proportionately among those benefited by the litigation. Boeing Co. v. VanGemert, 444
U.S. 472, 478, 100 S. Ct. 745, 749 (1980). The Supreme Court has instructed that the
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common fund is applied appropriately where: (1) the classes of persons benefited by the
lawsuits are small in number and easily identifiable; (2) benefits can be traced with some
accuracy; and (3) the court has confidence the costs of litigation can indeed be shifted
with some exactitude to those benefiting. Boeing Co., 444 U.S. at 479, 100 S.Ct. at 749,
citing Alyeska Pipeline Serv. Co. v. Wilderness Society, 421 U.S. 240, 265, n. 39, 95 S. Ct.
1612, 1625, n. 39 (1975). Those characteristics which justify common fund fees are not
present where litigants simply vindicate a general social grievance. Alyeska Pipeline
Serv. Co., 421 U.S. at 263-65, and n. 39, 95 S. Ct. at 1624-26, and n. 39.
¶23 The motivating principle underlying this Court’s adoption of the common fund
doctrine was to prevent unjust enrichment of non-participating claimants at the expense
of active litigants and their counsel. Murer v. State Comp. Mut. Ins. Fund, 283 Mont.
210, 222, 942 P.2d 69, 76 (1997) (Murer III) (discussing rationale for adopting the
common fund doctrine in Means, 191 Mont. 395, 625 P.2d 32). “The doctrine is
employed to spread the cost of litigation among all beneficiaries so that the active
beneficiary is not forced to bear the burden alone and the ‘stranger’ . . . beneficiaries do
not receive their benefits at no cost to themselves.” Murer III, 283 Mont. at 222, 942
P.2d at 76, quoting Means, 191 Mont. at 403, 625 P.2d at 37.
¶24 This Court has reduced to three elements the common fund doctrine’s equitable
underpinnings:
There are three elements necessary to establish a common fund. First, a
party, styled the active beneficiary, must create, reserve, preserve, or
increase an identifiable monetary fund or benefit in which all active and
non-participating beneficiaries have an interest. Second, the active
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beneficiary must incur legal fees in establishing the common fund. Third,
the common fund must benefit ascertainable, non-participating
beneficiaries.
Ruhd v. Liberty Northwest Ins. Corp., 2004 MT 236, ¶ 16, 322 Mont. 478, ¶ 16, 97 P.3d
561, ¶ 16, citing Mountain West Farm Bureau., ¶¶ 15-18. We recently analyzed these
elements and applied the common fund doctrine in several workers’ compensation cases.
See Murer III, 283 Mont. 210, 942 P.2d 69, Rausch v. State Compensation Ins. Fund,
2002 MT 203, 311 Mont. 210, 54 P.3d 25, Flynn v. State Compensation Ins. Fund, 2002
MT 279, 312 Mont. 410, 60 P.3d 397, and Ruhd, 2004 MT 236, 322 Mont. 478, 97 P.3d
561.
¶25 The elements for establishing a common fund are appropriately straightforward.
Application of the doctrine is, however, not warranted in every case that establishes a
new rule of law from which other claimants may derive a benefit. In Murer III, the
earliest of our recent common fund worker’ compensation cases, we emphasized that
claimants there accomplished “significantly more than just the establishment of a
favorable legal precedent. Additionally, claimants established a vested right on behalf of
the absent claimants to directly receive immediate monetary payments of past due
benefits underpayments; and based on the establishment of those vested rights, the State
Fund became legally obligated to make the increased benefits payments.” Murer III, 283
Mont. at 223, 942 P.2d at 76-77 (emphasis added). Similarly, in Rausch, the result of the
claimant’s efforts was the immediate payment of an undisputed impairment award, the
payment of which would have otherwise been delayed until the respective claimants
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reached retirement age. Thus, the dispute in Rausch centered not upon eligibility or
amount of the benefit, but rather on the timing of the payment. ¶ 10.
¶26 In Murer III, we concluded that the common fund doctrine properly applied due in
part to the certainty with which State Fund identified absent claimants and
mathematically calculated the increased benefits to which absent claimants were entitled.
(See Murer v. State Compensation Mut. Ins., 267 Mont. 516, 885 P.2d 428 (1994) (Murer
II) for the mandate underlying our discussion in Murer III regarding implementation of
the common fund). As a result of our Murer II decision, State Fund: (1) identified absent
claimants; (2) notified those claimants of their rights pursuant to Murer II; (3) calculated
with mathematical certainty the increased benefits due each absent claimant; and (4)
made payments to those claimants. Murer III, 283 Mont. at 223, 942 P.2d at 77
(emphasis added). State Fund was, “able to determine, with certainty, the number of
absent claimants involved and the amount of money to which each individual claimant
was entitled.” Murer III, 283 Mont. at 223, 942 P.2d at 77 (emphasis added). As we
noted in Rausch, at ¶ 48, quoting Murer III: “Those absent claimants will receive the
benefit ‘even though they were not required to intervene, file suit, risk expense, or hire an
attorney.’” Thus, absent application of the common fund doctrine, both the Murer and
Rausch beneficiaries would have reaped the benefits of protracted legal action at no
expense to themselves, a classic example of the unjust enrichment specifically targeted
by the common fund doctrine exception to the American Rule.
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¶27 Here, by contrast, benefits due to non-participating Stavenjord beneficiaries will
not be readily identifiable on superficial review of case files, nor can benefits due be
calculated with certainty by way of a mathematical formula. The result of this case will
not be that all eligible claimants will automatically be due a sum certain for unpaid PPD
benefits. Rather, the parties here stipulated that it may be necessary for claimants’ claim
files to be updated or augmented in order to determine what PPD benefits each claimant
is due under Stavenjord I. Thus, the “identifiable monetary fund or benefit” which the
first of the three elements of the common fund doctrine requires is absent here. See ¶ 24,
and Ruhd, ¶ 16. Moreover, because each claimant’s situation will be unique, there will
be no simple universal formula that can be applied to all non-participating claimants to
determine to what additional money they are entitled. It also bears noting that many of
these claimants are represented by counsel, and will require further assistance from their
attorneys. A common fund reduction in fees to benefit Stavenjord’s counsel would create
a disincentive for non-participating claimants’ counsel, and could thereby threaten a
claimant’s prospects for an aggressively negotiated benefit recovery.
¶28 We have previously said the common fund doctrine is applied properly where the
potential economic returns from individual claims are insufficient to warrant litigation,
and as a result wrongful acts go uncorrected. Application of the common fund doctrine is
“especially appropriate” where “individual damage from an institutional wrong may not
be sufficient from an economic viewpoint to justify the legal expense necessary to
challenge that wrong.” Murer III, 283 Mont. at 222-23, 942 P.2d at 76. Stavenjord’s
claim resulted in a $17,027.00 difference between the $10,000.00 in benefits to which she
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was entitled under the ODA, and the $27,027.00 in PPD benefits to which we concluded
she was entitled. Stavenjord I, ¶¶ 9-10. While we acknowledge that Stavenjord and her
counsel likely incurred significant expense in pursuing her case through the appeal
process, the fact is that eligible claimants do have the financial incentive to pursue
Stavenjord benefits, provided they and their counsel expend the time and effort required
to reap the benefit of our decision. Because more work remains to be done before most
claimants may successfully obtain their respective Stavenjord benefits, the concern with
unjust enrichment to non-participating beneficiaries that underlies the common fund
doctrine’s intended purpose is largely absent here. We therefore conclude that the WCC
erred in determining that Stavenjord I created a common fund. Thus, Stavenjord’s
counsel is not entitled to recover fees from cases brought by other claimants in pursuit of
Stavenjord-type PPD benefits.
ISSUE FOUR
¶29 4. Whether the WCC erroneously concluded that Stavenjord’s counsel timely
asserted a claim for common fund attorney fees.
¶30 We have already determined that Stavenjord I did not create a common fund. As a
result, we need not resolve this issue.
CONCLUSION
¶31 For the foregoing reasons, we conclude the District Court erred regarding both
partial retroactive application of Stavenjord I and creation of a common fund. We
remand this case to the WCC for further proceedings to include the determination of an
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appropriate procedure by which potential Stavenjord beneficiaries will be identified and
notified of their interests related to increased Stavenjord-type PPD benefits.
/S/ PATRICIA COTTER
We Concur:
/S/ KARLA M. GRAY
/S/ JAMES C. NELSON
/S/ W. WILLIAM LEAPHART
/S/ JOHN WARNER
/S/ JIM RICE
/S/ BRIAN MORRIS
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