California Attorney’s Fees in a Post-COLA World

Notice of Correction: The date in the first paragraph has been corrected.

Labor Code Section 4659(c) mandates that for injuries occurring after January 1, 2003, awards resulting in either a life pension or total permanent disability indemnity shall be increased by an amount equal to the percentage increase in the “state average weekly wage” as compared to the prior year. This is commonly referred to as the “cost of living adjustment” or COLA. Currently, the precise date that the annual increases are to be calculated from is pending before the California Supreme Court in Duncan v. Workers’ Comp. Appeals Bd. and X.S. 2010 Cal. LEXIS 2255. Regardless of the commencement date chosen by Duncan, however, a reality has set in that the annual increases mandated by Section 4659(c) result in a substantial increase in the present value of the benefits being awarded.

Since Section 4659(c)’s application, it is not uncommon to receive commutations from the Disability Evaluation Unit reflecting present values of two or three million dollars. The corresponding attorney’s fees requested in these cases often exceed $250,000. In many cases, a defendant’s obligation to commute and pay “up-front” these large attorney’s fees has been a source of litigation.

Generally speaking, when the appeals board makes an award of an attorney’s fee, the fee must be “reasonable” (Labor Code Section 4906(a)(d)). Section 4906(d) sets forth various factors the Appeals Board must consider in reaching that determination. In addition to these factors, pursuant to Appeals Board Rule 10775, the Appeals Board must make reference to the attorney’s fee guidelines contained in the Policy and Procedure Manual.

However, the question is how is the Appeals Board likely to apply these various considerations in determining an attorney fee in a case where the COLA has caused such a substantial increase in the actuarial present value of the permanent disability being awarded.

Interestingly, in 1979 the Appeals Board addressed an analogous situation to the present post-COLA world. In 1979, it addressed the increase in permanent and total disability awards created by the 1974 legislation that required permanent and total disability awards to be paid at the temporary disability rate as opposed to the permanent disability indemnity rate.

In Goler v. W&J  Sloane Co. (1979) 44 Cal. Comp. Cases 1065 (Appeals Board En Banc), the Appeals Board determined that where an injured employee is permanently totally disabled (i.e., 100%) it will not ordinarily allow a fee based strictly on the actuarial present value of the employee’s permanent total disability indemnity. Rather, the Appeals Board indicated that it would consider what a reasonable fee would have been absent the 1974 statutory change (i.e. the fee may be based on 621.25 weeks of permanent disability indemnity at the employee’s permanent disability indemnity rate). In substance, Goler recognized that an attorney’s fee in a 100% permanent disability indemnity case should be comparable to (rather than grossly disproportionate to) an attorney’s fee in a 99-3/4% permanent disability case of similar complexity.

A number of years later in Lawrence Drasin & Associates v. Workers’ Comp. Appeals Bd. (Pilkenton) (1992) 57 Cal. Comp. Cases 142, the Appeals Board awarded a $6,000.00 attorney’s fee in a 100% case. The Court of Appeal, however, determined that the 100% permanent disability case before it was of “above average” complexity. Therefore, the Court of Appeal determined that, under the Appeals Board’s own attorney’s fee guidelines, it was improper to only allow an attorney’s fee corresponding to slightly more than 12% of the permanent disability indemnity award as it would have been before the statutory change. Accordingly, the Court of Appeal remanded the matter to the Appeals Board to recalculate the attorney’s fee.

However, the Pilkenton court did not disapprove of the basic concept of Goler that an attorney’s fee in a 100% permanent disability case should not be “grossly disproportionate” to an attorney’s fee in a 99-3/4% permanent disability case of similar complexity.

In Wheeler & Beaton v. Workers’ Compensation Appeals Bd. (Tomlinson) (1995) 60 Cal. Comp. Cases 1075, the Board awarded a $10,500.00 attorney’s fee in a 100% a permanent disability case. The Court of Appeal, however, determined in substance that the Appeals Board did not adequately consider the fee criteria set forth in Appeals Board Rule 10775 (which is now also codified in Labor Code section 4906(d)). The Tomlinson court indicated that the Goler rule cannot be blindly applied, without any consideration for the other factors listed in Board Rule 10775. However, the Tomlinson court did not disapprove of the basic concept of Goler that an attorney’s fee in a 100% permanent disability case should not be grossly disproportionate to an attorney’s fee in a 99-3/4% permanent disability case of similar complexity.

Pursuant to Goler, Pilkenton and Tomlinson, though Labor Code Section 4906(d) or Board Rule 10775 do not make specific reference to the comparison between what would be awarded for a 99 ¾ percent and 100 percent permanent disability case, the Appeals  Board is likely to consider that specific factor. Indeed, in many if not most of these COLA cases, in addressing the issue of attorney’s fees, the Appeals Board is likely to look at the requested attorney fee and determine whether that fee is grossly disproportionate to an attorney fee based on an award of 99-3/4 percent permanent disability.

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