The Unreasonable Contest (That Wasn't): How Employers Can Be Forced to Pay the Claimant’s Legal Fees

Section 440 of the Pennsylvania Workers’ Compensation Act provides that an employee in a workers’ compensation case is entitled to attorney’s fees when an employer contests liability under the Act, unless the employer has established a “reasonable basis” for the contest. After a long and complex course of litigation spanning over a decade and a half, the Pennsylvania Supreme Court decided in Cnty. of Allegheny v. Workers' Comp. Appeal Bd. (Parker), 2018 Pa. LEXIS 371 (Pa. Jan. 18, 2018), that an employer had to bear the cost of a claimant’s attorney’s fees for litigating an unreasonable contest (that wasn’t).

In Parker, the Workers' Compensation Judge correctly granted a suspension petition for the employer. The Workers’ Compensation Appeal Board reversed the ruling and further held that the employer lacked a reasonable basis for litigating the petition. As a result, the claimant was awarded attorney's fees under Section 440 of the Act. Thereafter, the employer appealed the ruling to the Commonwealth Court.

Simultaneous with its appeal on the merits to the Commonwealth Court, the employer filed a separate request for Supersedeas with the Appeal Board. If granted, this would provide a stay of the attorney’s fees payment pending the outcome of the appeal on the merits. The employer argued that, without a stay, it would be irreparably harmed because the Workers’ Compensation Supersedeas Fund does not stipulate for reimbursement of attorney’s fees paid for an unreasonable contest. The Appeal Board denied the request for Supersedeas, and the employer proceeded to request the same from the Commonwealth Court. Supersedeas was again denied, leaving the employer no option but to pay the attorney’s fees to the claimant’s counsel or risk the imposition of a penalty.

When the underlying appeal was later decided by the Commonwealth Court, the Appeal Board ruling was reversed with respect to both the suspension petition and the award of attorney’s fees for the unreasonable contest claim. The court indicated that the decision was consistent with its prior decision in Barrett v. Workers' Compensation Appeal Board (Sunoco, Inc.), 987 A.2d 1280, 1290 (Pa.Cmwlth. 2010). In Barrett, the claimant was awarded litigation costs that were incurred while defending against the employer’s termination petition. Following an appeal, the claimant did not prevail on the merits of the case. Reasoning that the appeal would be meaningless, and the claimant unjustly enriched unless the employer could recoup the erroneously awarded deposition costs, the claimant was ordered to disgorge the awarded costs. The Commonwealth Court also referenced the Pennsylvania Supreme Court decision in Lucey v. Workmen's Compensation Appeal Board (Vy-Cal Plastics PMA Group), 732 A.2d 1201 (Pa. 1991), where the Workers’ Compensation Judge ordered the claimant’s counsel to repay improperly awarded counsel fees.

The Commonwealth Court observed that the employer lacked any other remedy to recover the attorney’s fees that it ultimately should not have been required to pay and that allowing retention of the counsel fees would unjustly enrich the claimant’s counsel. It dismissed the claimant’s contention that allowing employers to recoup erroneously granted attorney’s fees would have a chilling effect on the representation of claimants seeking unreasonable contest fees. The Commonwealth Court emphasized that because the claimant was not the prevailing party, he was not entitled to unreasonable contest attorney’s fees under Section 440 of the Act. The Commonwealth Court remanded the case with instructions to refund the employer the attorneys’ fees that it should not have been required to pay. Thereafter, the claimant petitioned for appeal, which was later granted by the Pennsylvania Supreme Court.

Following the ruling, the employer requested Supersedeas Fund reimbursement of the workers’ compensation benefits and attorney’s fees that it had paid as a result of the Appeal Board’s erroneous determination. However, as the employer had predicted in its prior argument for Supersedeas, the Bureau only granted reimbursement for workers’ compensation benefits. When the employer could not recoup the attorney’s fees from the Fund, it filed a refund petition, seeking reimbursement directly from claimant’s counsel. The judge denied the refund petition, predominantly relying upon a lack of precedent. The ruling was affirmed on appeal.

In its January 18, 2018, decision, the Supreme Court acknowledged that Section 440 only allows unreasonable contest attorney’s fees where the claimant is the prevailing party in the underlying proceedings. It also noted the employer’s position, that forcing it to bear the costs of attorney’s fees where it had prevailed in the underlying action would be inequitable, and that claimant’s counsel would be unjustly enriched if the attorney’s fees were not disgorged. Nevertheless, the Supreme Court determined that the Commonwealth Court committed an error of law when it ordered the disgorgement of attorney’s fees. It pointed to the express language of the Act, which allows for reimbursement of compensation benefits without providing a right to reimbursement of attorney’s fees. It inferred from the lack of an express provision allowing reimbursement for attorney’s fees that the legislature intended the cost to be borne by employers, and the court opined that it was consistent with the overall policy goals of the Act. It vacated the order of the Commonwealth Court and reinstated the order of the Appeal Board with respect to attorney’s fees.

Until the Pennsylvania legislature addresses the issue of reasonable contest attorney’s fees in this context, these costs will continue to be borne by employers. Despite the ruling, employers and insurers need not press the nuclear button. The situation applies only in limited circumstances, and it could have been avoided had the Bureau or Commonwealth Court granted the employer’s request for Supersedeas. Moving forward, it is likely that both will be more receptive to requests for Supersedeas in this context. After all, if an unreasonable contest is found, claimant's counsel will be entitled to attorney's fees.

*Alex is an associate in our Pittsburgh, Pennsylvania office. He can be reached at 412.803.1148 or abpossino@mdwcg.com.

_{Defense Digest, Vol. 24, No. 2, June 2018. 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. © 2018 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.}