714 Fees, What Are They And How Do We Collect Them Part 2

In Part 1 of our look at Virginia Code section 65.2-714(b), which is the source of the mysterious “714 fees” available to claimants’ attorneys under Virginia’s Workers’ Compensation Act, we learned what those fees were and what the statute requires in order for the claimant’s attorney to collect them. As promised, in this Part 2, I will look at some of the more significant constitutional challenges to the statute and some of the numerous cases which have been litigated over the application of the statutory scheme.
Section 65.2-714 has a long history of being litigated both before the Workers’ Compensation Commission and the courts. In Fairfax Hosp. Ass’n v. Sines, No. 1503-87-4 (Ct. of Appeals, March 14, 1989), The hospital challenged the statute as unconstitutional in that the mandatory award of attorneys’ fees to claimants’ counsel without the prior agreement of the hospital deprived the hospital of its property (the amount of the fee which was deducted from the payment received by the hospital from the employer) without due process. The Court of Appeals of Virginia (CAV) found that the statutory award of fees did comply with due process requirements in that the hospital received notice of the claim to fees, made an appearance at the hearing which determined the amount of the fees, and was able to enter its constitutional challenge to the statutory scheme providing for the fee, and to have that constitutional challenge heard and considered in an appropriate forum. The CAV found that automatically granting attorneys’ fees in the situation set out by the statutes was not a denial of due process. Rather, it reflected the legislature’s “balancing” of rights between claimants, insurers, healthcare providers, and attorneys.
Fairfax Hospital raised a second constitutional challenge to the statutory scheme which allowed the Commission to award attorneys’ fees by an administrative process.
Commission has exclusive jurisdiction over all disputes concerning the payment of fees to attorneys and charges by HCP’s, including physicians and hospitals. Combustion Eng’g, Inc., v. Lafon, 22 Va. App. 235, 468 S.E.2nd 698 (1996).
A slightly different twist on the constitutionality of this Code section arose in Town & Country Hosp. v. Davis, 64 Va. App. 658, 770 S.E.2nd 790 (2015). In that case, a Deputy Commissioner in Virginia awarded 714 fees against an out-of-state HCP. The hospital objected arguing that the award of attorneys’ fees without the consent of the hospital, constituted interference with interstate commerce; therefore, the out-of-state hospital could not be required to accept the Virginia statutory scheme. Once again, the challenge reached the CAV for determination, and once again the court rejected the challenge. The CAV found that by accepting payment of the claimant’s medical bills from the workers’ comp insurer, the hospital had consented to the jurisdiction of the Virginia Workers’ Compensation Commission and the Virginia Workers’ Compensation law. The decision served to update and reaffirm the CAV’s earlier opinion in Mary Wash. Hosp. v. Tyler, No. 1846-91-4 (Ct. of Appeals, February 26,1992). Citing Fairfax Hospital, supra, the CAV restated that the statutory scheme of awarding attorneys’ fees reflects a “legislative balancing” of the rights of claimants, insurers, providers, and attorneys. Mary Wash. Hosp. supra.
As a prerequisite to recovery of 714 fees, claimant’s attorney must establish that the claim was “contested.” The CAV considered that requirement in Pavlichek v. Jerabek, Inc., 21 Va. App. 50, 461 S.E.2nd 424 (1995). The court found that the words “contested claim” simply reflected the legislative requirement that the dispute combine with other specific circumstance surrounding the claim, which was held to be compensable, before attorneys’ fees can be awarded incidental to the benefits for medical services arising from the claim which inure to the benefit of a third party. A claim was considered “contested” where confusion and delay, which was attributable to the employer, complicated and protracted the proceedings which left the claimant without the benefits, to which he was entitled by statute, for months while his attorney sought clarification, engaged in discovery, and negotiated with the employer. Despite the efforts of claimant’s counsel to resolve the wage issue with the employer, the issue remained unresolved and had to be determined by the Commission through litigation. Under such circumstances the claim was “contested” as a matter of law. The recalcitrant employer necessitated the assistance of counsel to obtain the payment both to the claimant and to the HCP’s. By contrast, a claim was not “contested” as contemplated by the statute where the medical bills were not approved as a result of a dispute necessitating litigation and were not before the Commission on a claim which was initially disputed. Beard v. City of Danville Pub. Works, No. 121-95-3 (Ct. of Appeals, April 30, 1996). Nor was a case considered “contested” where, while there may have been some delay in investigating the claim and preparing a memorandum of agreement, the case was never denied, and any subsequent disagreement involved the reasonableness of the medical charges and did not affect the claimant. Gamble v. PA Coal Company, 71 O.W.C. 299 (1992).
Once the Commission finds the claimants attorney is entitled to a fee, the next issue is how much. The Virginia Supreme Court (VSC) has held that the standard for fees to be awarded under the Workers’ Compensation Act is one of reasonableness “in furtherance of the beneficent purposes” of the Act. Huddock v. Virginia State Bar, 233 Va. 390, 355 S.E.2nd 601 (1987). As an example of the Commission’s thinking when awarding attorneys’ fees, an award of $1,250 was proper where the case record was voluminous and showed that the claimant’s attorney addressed numerous issues and represented the claimant during a lengthy hearing. Elliott v. Neighbors, No. 2975-97-3 (Ct. of Appeals, May 12, 1998).
The Commission has adopted certain guidelines fees in particular situations. For example, the benchmark fees for the following types of cases are considered guidelines by the Commission: 1) where the claimant’s attorney negotiates a lien waiver on behalf of the claimant with the comp carrier, 10%; 2) 15% in cases that resolve permanent disability entitlement;3) 15% in cases where the claimant is required to prove permanent partial disability; and 4) 20% for a Full and Final (F&F) settlement which resolves the claimant’s entire case through compromise. Correia v. Stafford County School Board, VWC File No.: 215-12-05 (June 5, 2007). These fees are only guidelines and do not relieve the Commission of its duty to evaluate each case individually. Where the guideline fee would be out of proportion to the time, effort, and responsibility of the legal representation, the Commission must award a lesser fee. Ibid.
The Commission does not use a fee schedule. Instead, it considers the time consumed by the representation, the necessity of the attorney’s appearance at a hearing or deposition, the attorney’s ability and skill as reflected in the result obtained, and the actual results which inured to the benefit of the party against whom the attorneys’ fee is being assessed. Marcus v. Foley, 64 O.I.C. 224 (1985); Williams v. Philip Morris, Inc., 69 O.I.C.207 (1990). The Commission may also scrutinize the attorney’s request for reimbursement of costs advanced by the attorney for which the attorney is seeking reimbursement after having paid those costs on behalf of the claimant. However, the Commission has drawn the line at the attorney’s overhead expenses such as routine postage and photocopying. The Commission has declared that payment of these routine costs unfairly shifts these routine overhead expenditures on to the claimant. Smith v. Haverty Furniture Co., Inc., VW File No. 233-15-93 (July 9, 2009).
Perhaps the most unique feature of this statutorily-created fee award is that the HCP does not have to agree to its representation by the claimant’s attorney nor to the award of the fee. Doss v. The ARA Group, Inc., 75 O.W.C. 79 (1996). The Commission has pointed to the mandatory language which the legislature used in drafting this statute. The General Assembly declared that an attorney’s fee shall be awarded to the claimant’s attorney. The amount of the fee is left to the Commission’s discretion in applying the general principles set out above. In that regard, a 33% fee awarded to the claimant’s attorney was not an abuse of discretion where the Commission observed that a one-third contingency fee was routine for collection cases heard in civil court, which would have been the HCP’s only avenue of redress outside the Commission. Aleman v. J. R. Roofing, LLC, JCN VA02000014089 (sept. 4, 2015). The attorney cannot seek payment of the 714 fees until the HCP has been paid by the employer or the comp insurance carrier. Danville Radiologists, Inc. v. Perkins, 22 Va. App. 454, 470 S.E.2nd 602 (1996).
The issue of 714 fees remains a sensitive topic among workers’ comp practitioners with opinions split essentially along the lines of claimants’ attorneys, who obviously favor them, and defense attorneys, who just as obviously tend to think that 714 fees are a bad idea. However, the statutory scheme has withstood numerous constitutional challenges, as we have seen. They have now been a part of Virginia’s Workers’ Compensation statutory scheme for a sufficient length of time that the opposition to 714 fees has, at least, quieted down, if not gone away. With major policy changes in other areas which are likely to come in the next few years due, at least in part, to the Commission’s adoption of a medical fee schedule, my prediction is that 714 fees will remain a part of workers’ comp practice in Virginia for the foreseeable future.