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Claimant’s Counsel Must Refund Erroneously Granted Attorneys’ Fees

March 1, 2017

Defense Digest, Vol. 23, No. 1, March 2017

By Shannon Fellin, Esquire

Key Points:

  • When attorneys’ fee awards are paid and then later reversed, the proper remedy is a refund from claimant’s counsel, not from the Supersedeas Fund.
  • Principles of unjust enrichment to require reimbursement of both litigation costs and attorneys’ fees from claimant’s counsel are expanded.
  • Argument that a claimant’s right to representation would be jeopardized by reimbursement from his attorney is rejected.

 

Believe it or not, sometimes Workers’ Compensation Judges get it wrong. A recent case from the Commonwealth Court allows the employer to be made whole when there is an award of attorneys’ fees that was erroneously awarded. The remedy is not reimbursement from the Supersedeas Fund, but directly from claimant’s counsel!

Under the Pennsylvania Workers’ Compensation Act, Section 440 (b), an employee who prevails in a contested case shall be awarded attorneys’ fees, unless the Workers’ Compensation Judge finds that the employer presented a reasonable contest. To avoid an award of attorneys’ fees, the employer must prove that there are genuine issues of fact and law. When the judge awards attorneys’ fees, it is done on an hourly basis from a summary provided by claimant’s counsel. These awards can be quite generous.

An award of attorneys’ fees can be appealed to the Workers’ Compensation Appeal Board, with a request to stay the award pending the appeal (a supersedeas request). If the request is denied, then the employer must make payment. In the past, there has been no satisfactory remedy for the employer if the Workers’ Compensation Appeal Board or a higher court ultimately finds that the attorneys’ fee award was not warranted based on the language in the reimbursement statute. The provision was limited to “payments of compensation,” which has been interpreted to include medical and indemnity payments, but not attorneys’ fees.

However, on December 20, 2016, in County of Allegheny v. WCAB (Parker), 2016 Pa. Commw. LEXIS 556 (Pa.Commw.Ct. Dec. 20, 2016), the Commonwealth Court held that when attorneys’ fees are improperly awarded, the employer is entitled to repayment from claimant’s counsel. County of Allegheny has a very complicated procedural history involving the employer’s suspension petition based on an actual job offer. By decision dated April 23, 2008, a Workers’ Compensation Judge granted the suspension petition, finding that the 80-year-old claimant had failed to follow through on a job offer and had completely withdrawn from the labor market. The claimant appealed. The Appeal Board reversed this decision and found that the employer did not have a reasonable contest. The case was sent back to the Workers’ Compensation Judge to determine the amount of attorneys’ fees. The judge awarded fees for the work done on a portion of the litigation, and this second decision was appealed by both parties.

The Appeal Board increased the award of attorneys’ fees, and the employer appealed to the Commonwealth Court. When the employer’s request for supersedeas was denied, $14,750 was paid to claimant’s counsel. Ultimately, the Commonwealth Court ruled in the employer’s favor. When the employer applied for supersedeas reimbursement, the Bureau of Workers’ Compensation approved the reimbursement for indemnity payments but denied reimbursement of the $14,750 in attorneys’ fees. The Bureau maintained that such payments were not reimbursable under Section 443.

The employer challenged the Bureau’s determination and sought an order requiring counsel to refund the $14,750 in attorneys’ fees. The Workers’ Compensation Judge rejected the claimant’s contention that the employer had waived his right to reimbursement and held that there was no clear precedent for an order requiring the return of unreasonable contest attorneys’ fees. The judge further stated that claimant’s counsel may voluntarily return the fees pursuant to ethical and moral principles, but he would not be ordered to do so. The judge also denied the claimant’s request for attorneys’ fees in this round of litigation. Both parties appealed, and the Appeal Board affirmed. This decision was also appealed to the Commonwealth Court.

On appeal to the Commonwealth Court, the employer argued that there was precedent under Barrett v. WCAB (Sunoco), 987 A.2d 1280 (Pa.Commw.Ct. 2010), which held that an employer can recover litigation costs directly from claimant’s counsel when those costs were erroneously awarded. In Barrett, the court had concluded that, since litigation costs could not be recovered from the Supersedeas Fund, allowing counsel to retain costs to which he was not entitled would result in unjust enrichment. The court noted that there would be no hardship to the claimant, since reimbursement came from the attorney.

In County of Allegheny, the Commonwealth Court adopted this reasoning and directed claimant’s counsel to reimburse the costs. They noted that every factor in Barrett was present in this case, including the lack of any other remedy in law. The court rejected the claimant’s argument that the claimant may have to pay attorneys’ fees or that this could have a “chilling effect” on representation of claimants. To the latter argument, the court suggested that if claimant’s counsel was concerned about the hardship of later having to repay unreasonable contest attorneys’ fees, he could have agreed to a stay of the award during the pendency of the appeal.

This decision was supported by three judges only, with two not participating, and one dissenting. The dissent argued that the majority’s reliance on Barrett was overreaching and that the legislature, not the court, should address this issue.

For those of us who face claimants’ counsel who routinely request attorneys’ fees and judges who often award these fees, it is reassuring to know that there is a remedy to recoup improperly awarded attorneys’ fees.

*Shannon is a shareholder in our Harrisburg, Pennsylvania office who can be reached at 717.651.3507 or spfellin@mdwcg.com.

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Defense Digest, Vol. 23, No. 1, March 2017. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2017 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.

Affiliated Attorney

Shannon Fellin
Shareholder
(717) 651-3507
spfellin@mdwcg.com

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