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Montana Schools Group Workers' Compensation Risk Retention Program v. Department of Labor and Industry

Court of Workers Compensation of Montana

June 8, 1998

MONTANA SCHOOLS GROUP WORKERS' COMPENSATION RISK RETENTION PROGRAM Appellant
v.
DEPARTMENT OF LABOR AND INDUSTRY/EMPLOYMENT RELATIONS DIVISION Respondent.

          Date Submitted: May 13, 1998

          ORDER AMENDING APRIL 21, 1998 ORDER AND JUDGMENT

          MIKE McCARTER JUDGE.

         Summary: In a prior decision, Montana Schools Group Workers' Compensation Risk Retention Program v. Department of Labor and Industry/Employment Relations Division, 1998 MTWCC 31, the WCC found assessment rules promulgated by the DOL following a 1995 decision by this Court to be invalid. The Court ordered an evidentiary hearing to determine which DOL costs for workers' compensation regulation were direct costs, but recused itself from conducting that hearing. Subsequently, both parties requested the Court to amend or reconsider its rulings.

         Held: Upon reflection and in light of arguments by both parties, the Court concludes it should not have ordered an evidentiary hearing on direct costs, but should once again remand the matter to the DOL for rulemaking. The Court's view on the validity of the DOL position on direct costs does not change and is reiterated. While the Court agrees with the DOL that the rulemaking process does not require the DOL to hold a contested case hearing, make findings of fact, and provide a detailed explanation for its rules, the nature of rulemaking under section 39-71-201, MCA (1991) requires the Department to establish some sort of factual basis for its determination as to what costs do and do not constitute direct costs. Otherwise, the Department would be free to disregard and nullify statutory criteria it is required to implement. Given the length of time this matter has been in litigation, the WCC finds it is unlikely, if not impossible, that the Department could retroactively determine and allocate direct costs. Therefore, the Court orders that MSG shall be liable only for the part of the assessment which is based on indirect costs. Although attorneys fees are not awarded to MSG based on earlier litigation of this matter, it is awarded attorney fees on this enforcement proceeding because this matter has become an "extreme case" in which justice and equity require an award of fees.

         Topics:

Administrative Agencies: Rules: Rulemaking. Following parties' request that WCC reconsider its orders in Montana Schools Group Workers' Compensation Risk Retention Program v. Department of Labor and Industry/Employment Relations Division, 1998 MTWCC 31, WCC concludes it should not have ordered an evidentiary hearing on direct costs, but should once again remand the matter to the DOL for rulemaking. The Court's view on the validity of the DOL position on direct costs does not change and is reiterated. While the Court agrees with the DOL that the rulemaking process does not require the DOL to hold a contested case hearing, make findings of fact, and provide a detailed explanation for its rules, the nature of rulemaking under section 39-71-201, MCA (1991) requires the Department to establish some sort of factual basis for its determination as to what costs do and do not constitute direct costs. Otherwise, the Department would be free to disregard and nullify statutory criteria it is required to implement.
Attorney Fees: Cases Awarded. Although attorneys fees are not awarded to Montana Schools Group Risk Retention Program based on earlier actions to contest department's assessment of costs to it, attorneys fees are awarded on this enforcement proceeding because the position taken by the Department of Labor resulted in repeated proceedings, making this an "extreme case" in which justice and equity require an award of fees.

         ¶1 On April 21, 1998, this Court entered an Order Regarding Assessment Rules holding that the Department of Labor and Industry's (Department) assessment rules promulgated following the Court's 1995 Decision in this case were invalid and void. I ordered an evidentiary hearing to determine what Department costs for workers' compensation regulation are "direct costs," however, I indicated I would recuse myself with respect to the hearing.

         ¶2 On May 5, 1998, the petitioner, Montana Schools Group Workers' Compensation Risk Retention Program (MSG), filed a motion for amendment or reconsideration of the April 21, 1998 Order and Judgment. On April 8, 1998, the Department filed a similar motion. On that date, I also met with counsel and agreed to accept further briefs regarding the motions.

         ¶3 After reviewing the parties' arguments, and upon further reflection, I find good cause to amend the April 21, 1998 Order and Judgment.

         I.

         ¶4 Initially, both parties argue that, in ordering an evidentiary hearing to determine direct and indirect costs, I usurped the Department's rulemaking power. I agree.

         ¶5 In ordering an evidentiary hearing, I was influenced by several factors, including (1) the failure of the Department to comply with the Court's prior decision; (2) the Department's apparent partiality to the existing method of assessment, which interfered with it objectively carrying out its statutory mandate; (3) the six-year lapse since MSG commenced this proceeding; and (4) the two-year delay between my 1995 Decision ordering rulemaking and the actual adoption of rules.

         ¶6 I was also influenced by, although I did not cite, Brackman v. Board of Nursing, 258 Mont. 200, 851 P.2d 1055 (1993). Brackman was a judicial review of disciplinary action taken by the Board of Nursing (Board) against three nurses. After overturning the Board's disciplinary decision, the District Court declined to remand the case for further proceedings. Rather, it adopted the hearing officer's recommendation for disciplinary action, a recommendation that the Board had disregarded.

         ¶7 In refusing to remand the matter to the Board of Nursing for further consideration, and in imposing its own disciplinary judgment, "[t]he District Court found that the Board violated its neutrality and impartiality and had become 'irreparably tainted'." 258 Mont. at 207, 851 P.2d at 1059. The Supreme Court agreed with that analysis and found a further reason for the District Court to finally resolve the matter:

The District Court's decision not to remand the action to the Board for determination of discipline is further supported by the need for final resolution of this matter. As evidence of absence of bias on its part, the Board points out that it now has several new members who did not consider this matter the last time it was before the Board. But the new Board members would require time to study the record before the Board could meet and enter an order. The nurses have been under the cloud of this litigation long enough.

258 Mont. 207-08, 851 P.2d at 1059.

         ¶8 Upon further reflection and analysis, I have concluded that Brackman does not support this Court substituting itself for the Department in a rulemaking proceeding. Brackman involved a contested case hearing, which is a quasi-judicial function and which is subject to greater scrutiny upon judicial review than is an agency rule. In addition, the district court did not fashion its own remedy, rather it adopted one recommended by a hearing examiner of the Board of Nursing. MSG is correct in its assertion that Northwest Airlines v. STAB, 221 Mont. 441, 720 P.2d 676, 678-79 (1986), precludes the Court from adopting rules to replace invalid agency rules.

         ¶9 I therefore conclude that I erred in ordering an evidentiary hearing. This matter must once again be remanded to the Department for rulemaking.

         II.

         ¶10 While both parties oppose an evidentiary hearing of the sort ordered on April 21, 1998, the Department seeks a more limited evidentiary hearing for the purpose of persuading the Court that there is a substantial factual basis for its rules and that the rules are therefore valid. The Department requested such a hearing prior to my April 21, 1998 Decision. Unfortunately, I did not directly address its request. I should have done so.

         ¶11 At the time of the April 21, 1998 Decision, I was persuaded that the scope of review concerning the validity of the rules precluded the Court from supplementing the record of ...


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