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Beaulieu v. Human Dynamics Corp.

Court of Workers Compensation of Montana

September 22, 2004

RONALD BEAULIEU Petitioner
v.
HUMAN DYNAMICS CORPORATION Respondent/Insurer.

          Submitted: August 23, 2004

          DECISION AND JUDGMENT AWARDING MEDICAL BENEFITS, ATTORNEY FEES, PENALTIES, AND SANCTIONS

          MIKE MCCARTER JUDGE.

         Summary: After accepting liability and paying for the claimant's prescription headache medications for several years, the respondent abruptly cut off further payments for the medications. It did so without either notice or explanation. In response to the claimant's petition to reinstate the payments, the respondent asserted it is not an insurer and is not subject to the jurisdiction of the Montana Workers' Compensation Court even though in two prior proceedings involving the same claimant and the same industrial accident it had expressly admitted it was subject to the Court's jurisdiction and that it was liable for workers' compensation benefits due the claimant. At trial the respondent offered no evidence justifying its termination of payment for the headache medications.

         Held: The respondent is judicially estopped from denying it is an insurer and is liable for the claimant's headache medications. The respondent's cutoff of payments for those medications was unreasonable. Therefore, it is further liable for the claimant's attorney fees and a twenty percent penalty. Finally, sanctions are imposed on the respondent and its attorney individually for taking a position contradictory to the position taken in the two prior cases.

         Topics:

Benefits: Medical Benefits. Where an insurer cuts off payment for prescription headache medications it has paid for several years and provides no facts supporting its cutoff, the insurer is liable for the continued payment for the medications.
Penalties: Insurers. Where an insurer, without notice or explanation, cuts off payment for prescription headache medications it has paid for several years, it is liable not only for the continued payment for the medications but for a twenty percent penalty.
Attorney Fees: Medical Benefits. Where an insurer, without notice or explanation, cuts off payment for prescription headache medications it has paid for several years, it is liable not only for the continued payment for the medications but for attorney fees pursuant to section 39-71-612, MCA (1987-2001).
Sanctions. Where a party takes a position that absolutely contradicts the position it took in two prior actions, and there is no factual or legal basis for their position, sanctions are appropriate and are imposed. § 39-71-2914, MCA (1987-2003).
Constitutions, Statutes, Rules, and Regulations: Montana Code Annotated: Section 39-71-2914, MCA (1987-2003). Where a party takes a position that absolutely contradicts the position it took in two prior actions, and there is no factual or legal basis for its changing its position, sanctions are appropriate and are imposed. § 39-71-2914, MCA (1987-2003).

         ¶1 This matter came on for trial on Monday, August 23, 2004, after the Court denied the respondent's Motion to Dismiss. (Beaulieu v. Human Dynamics Corporation, 2004 MTWCC 58.)

         ¶2 On August 19, 2004, the respondent filed a "Trial Brief." The purpose of a trial brief is to address the issues to be tried. The respondent's "Trial Brief" did not address the issues to be tried, rather it took issue with this Court's denial of its Motion to Dismiss and reargued its Motion to Dismiss. The brief was improper and impudent: Counsel for the respondent is admonished for filing it.

         ¶3 Exhibits: Exhibits 1 through 6 were admitted without objection.

         ¶4 Witnesses and Depositions: The claimant briefly testified. No depositions were offered.

         ¶5 Issues Presented: The issues are set out in the Pretrial Order as follows:

         E. Contested Issues of Law:

1.Whether this Court has jurisdiction over an alleged dispute where it has been determined by the Montana Supreme Court that the Respondent was not providing coverage under the Montana Workers' Compensation Act at the time of the alleged injury.
2.Whether this Court has jurisdiction in this matter where the employer was uninsured for workers' compensation purposes at the time of the alleged injury and the uninsured employers' fund has not been made a party to the dispute.
3.Whether Petitioner is entitled to reasonable medical expenses in the form of payment for medication for his headache condition pursuant to section 39-71-704, MCA.
4.Whether Petitioner is entitled to a 20% increase of award for unreasonable delay or refusal to pay benefits pursuant to section 39-71-2907, MCA.
5.Whether Petitioner is entitled to an award of costs and attorney fees.

(Pretrial Order at 3.)

         PREFACE

         ¶6 In making the following findings of fact, the Court takes judicial notice of prior Court files and decisions in Uninsured Employers' Fund v. Total Mechanical Heating & Air Conditioning (Total Mechanical), WCC No. 9901-8140, Beaulieu v. UEF and Human Dynamics, Inc. (Beaulieu I), WCC No. 9512-7463; and Beaulieu v. UEF and Human Dynamics, Inc. (Beaulieu II), WCC No. 9712-7880. Certified copies of those files are made a part of the record in this case.

         BACKGROUND

         ¶7 The present petition is the third one filed by the claimant, Ronald Beaulieu (Beaulieu), with respect to an April 16, 1994 industrial injury he suffered while working for Eureka Pellet Mills, Incorporated (Eureka). As I noted in my prior Decision and Order Denying Motion to Dismiss, filed in this case on August 10, 2004:

Beaulieu is one of a number of claimants affected by a tangled web woven by Dynamics in the mid-1990s. The facts concerning Dynamic's Montana activities are set out in Total Mechanical Heating & Air Conditioning v. UEF, 2002 MT 55, 50 P.3d 108, and the decisions below, 2000 MTWCC 39, 39A, and 70. As set forth in those decisions, in 1994 Dynamics enlisted thirteen Montana companies in an employee-leasing scheme under which Dynamics was to act as co-employer for the employees of the thirteen companies. Under its agreement with the companies, Dynamics assumed responsibility for workers' compensation coverage. However, Dynamics did not, in fact, provide workers' compensation insurance, rather it insisted that the Montana workers' compensation laws were preempted by ERISA. Failing in that argument, it provided faulty documents which it insisted showed it had provided retroactive workers' compensation coverage. This Court and the Supreme Court found that no coverage was provided.
As a result of Dynamic's machinations, and its failure to comply with Montana workers' compensation laws, thirteen Montana companies were victimized; they were held to be employers liable for workers' compensation premiums and assessed substantial penalties amounting to more than one million ($1, 000, 000) dollars. Dynamics now attempts to add to its list of victims by denying Beaulieu a forum for pursuing workers' compensation benefits even though it has accepted liability for his claim!
One of the thirteen Montana companies victimized by Dynamics was Eureka, which was Beaulieu's employer. Beaulieu's claim arose during the period Eureka was uninsured but under contract with Dynamics. In its decision in Total Mechanical Heating and Air Conditioning, the Supreme Court noted:
The parties agree that workers' compensation claims filed during the UEF-claimed lapses of compensation coverage were not paid by the UEF, but were paid by either Dynamics or Resources [the successor to Dynamics]. Dynamics maintains that these claims were paid under Dynamics' ERISA plan and were applied against the deductible on the CGIC workers' compensation policies carried by Dynamics and Resources.
2002 MT 55, ¶ 20 (emphasis added). Beaulieu's industrial accident occurred during the period of Dynamics' responsibility and Dynamics has been paying him workers' compensation benefits since his injury.

(Id. at 1-2, ¶¶ 2-4.)

         TRIAL COLLOQUY

         ¶8 At the commencement of the trial in this case, I had an extensive colloquy with counsel for the respondent. Admissions made by that counsel are considered in making the following findings of fact.

         ¶9 Having considered the Pretrial Order, the testimony presented at trial, the exhibits, and the arguments of the parties, the Court makes the following:

         FINDINGS OF FACT

         ¶10 Beaulieu was injured at work on April 16, 1994, while working for Eureka. The fact that he was injured in the course and scope of his employment is not disputed. The nature of his injuries is not disputed.

          ¶11 At the time of Beaulieu's industrial injury, Eureka had entered into an employee leasing agreement with Human Dynamics Corporation (HDC). Total Mechanical, ¶ 12.

         ¶12 HDC is a corporation. (In prior proceedings it has been known as Human Dynamics, Inc.) In 1994 HDC began providing "administrative services and other services including payroll, financial services, insurance services, risk management services and other services to small businesses" in Montana. Id., ¶ 11. HDC did not provide its own workers to Montana client companies, rather, it "simply assumed payroll, withholding, reporting, and insurance tasks previously performed by" its clients. Id. Under its agreements with its clients, the employees of the client companies become co-employees of HDC: The employees continued to work for their original Montana employers. Id.

         ¶13 HDC's agreements with its Montana client companies required HDC to "provide Workers' Compensation Coverage or it's [sic] equivalent." Id., ¶ 13. It failed to do so. Id. Rather, it purported to establish a health and accident plan covering the employees and then claimed that the plan preempted Montana workers' compensation requirements. Its preemption argument was based on federal ERISA statues (Employee Retirement Income Security Act), 29 U.S.C. §§ 1021, et. seq. Total Mechanical, ¶ 13.

         ¶14 HDC's attempt to circumvent Montana workers' compensation laws was unprecedented and legally unsupported. It abandoned its contention. As set forth in my decision in UEF v. Total Mechanical, 2000 MTWCC 39, aff'd in 2002 MT 55, ¶ 14, 309 Mont. 84, ¶ 14, 50 P.3d 108, ¶ 14:

Around June of 1994, the UEF wrote to HDC telling it that it was required to provide workers' compensation insurance coverage for employees working in Montana. (Tr. at 16.) On July 12, 1994, attorney Andrew J. Utick contacted the UEF on behalf of HDC. An interoffice memorandum of the Department records the conversation with Mr. Utick:
Andrew Utick phoned he knows Human Dynamics doesn't have WC. He said they are under the ERISA act but is aware Montana does not recognize this. He said Human Dynamics is working getting legit MT W.C. He will call & get an up-date & call me back. Advised if they do secure a policy we must receive a filing for each client.
(UEF Ex. A at 2.) At this point [July 1994], it is indisputable that HDC and its client companies did not have Montana workers' compensation insurance covering employees of the client companies.

         The foregoing findings from Total Mechanical make it crystal clear that as of July 1994, both HDC and its attorney, Andrew Utick, recognized that HDC was not a de jure insurer under Montana workers' compensation laws and that Eureka was an uninsured employer.

         ¶15 As a result of the lack of workers' compensation insurance coverage for Eureka and other client companies of HDC, the UEF commenced a proceeding for penalties under section 39-71-504, MCA. Id. In the course of those proceedings, HDC never asserted it was a workers' compensation insurer qualified to do business under Montana law. It admitted it had not provided its client companies with contemporaneous workers' compensation insurance coverage but attempted to convince the Montana Department of Labor and Industry (Department) that it had secured retroactive workers' compensation insurance coverage for its client companies. Total Mechanical, 2000 MTWCC 39, aff'd, 2002 MT 55.

         ¶16 As set forth in my decision in Total Mechanical, 2000 MTWCC 39, HDC never provided satisfactory evidence of retroactive insurance. Id. As a result, in 1996 the UEF determined that HDC's client companies were in fact uninsured and assessed penalties against the client companies totaling more than $1 million dollars. Id., ¶ 54. The penalties were affirmed on appeal to this Court, 2000 MTWCC 39, and by the Supreme Court in 2002 MT 55.

         A. 1995 Petition

         ¶17 On December 20, 1995, after both HDC and its attorney, Mr. Andrew J. Utick, had acknowledged that Eureka was uninsured, Beaulieu filed a petition with this Court. (Beaulieu I). The petition named the Uninsured Employers' Fund (UEF) and HDC as respondents and Eureka Pellet Mills, Incorporated, as the employer. (Beaulieu I, Petition for Hearing.) The petition alleged that Beaulieu suffered an industrial injury on April 16, 1994, and that Eureka "was either uninsured, or insured by Human Dynamics, Inc." (Id., ¶ II.) The petition went on to allege that HDC had accepted liability for Beaulieu's claim and had paid benefits, but that it had denied payment for certain medical procedures and had not paid the proper rate for temporary total disability (TTD) benefits.

         ¶18 Mr. Utick, on behalf of HDC, filed a response. In that response, HDC admitted the following facts:

A. That on April 16, 1994, the Petitioner suffered an industrial injury arising out of and in the course of his employment with Eureka Pellet Mills, Inc., of Eureka, Montana.
B. That at the time of the injury, the Employer was insured under the provisions of the Montana Workers' Compensation Act through Human Dynamics, Inc.
C. That Respondent, Human Dynamics, Inc., accepted liability for the Petitioner's injury and paid weekly temporary total disability benefits in accordance with Section 39-71-701, MCA.

(Beaulieu I, Response to Petition for Hearing at 1-2 (emphasis added).) In the contentions section of its response, HDC, stated:

A. The Respondent, Human Dynamics, Inc., has paid compensation at the Claimant's correct temporary total disability rate.
B. That the Claimant has received an award of disability Social Security benefits; that by reason of such disability Social Security benefits, the Respondent is entitled to reduce the Claimant's temporary total disability rate by reason of the Social Security offset, pursuant to Section 39-71-701, MCA.
C. That Claimant's Social Security disability award was retroactive to October 1, 1994 resulting in an overpayment in the amount of $5, 442.13 as of October 31, 1995. That even offsetting the amount of underpayment claimed by the Claimant, there would remain an overpayment of $3, 625.54 as of October 31, 1995.
D. That the medical benefits claimed by the Claimant were not properly prescribed by the Claimant's treating physician.
E. That the Claimant is not entitled to the disputed medical benefits; he is not entitled to an adjustment in his temporary total disability rate. The Respondent is entitled to adjust the Claimant's rate by reason of the Social Security offset and is entitled to recover the Social Security overpayment by reducing the Claimant's biweekly benefits in a weekly amount to be set by the Court.
F. The Claimant is not entitled to a penalty, reasonable costs, or attorney fees.

(Id. at 2 (emphasis added).)

          ¶19 Nowhere in its response did HDC challenge the jurisdiction of the Montana Workers' Compensation Court. Nowhere in its response did HDC allege that ERISA laws were an exclusive remedy which the claimant must assert in federal court. To the contrary, HDC and its attorney alleged that HDC was an insurer subject to Montana workers' compensation laws and submitted itself to the jurisdiction of the Montana Workers' Compensation Court. No other possible interpretation can be given its assertion that Beaulieu's employer "was insured under the provisions of the Montana Workers' Compensation Act through Human Dynamics, Inc." and its further allegation that "Human Dynamics, Inc., accepted liability for Petitioner's injury and paid weekly temporary total disability benefits in accordance with Section 39-71-701, MCA." (Id.)

         ¶20 On April 4, 1996, HDC filed a Motion for Summary Judgment along with a supporting brief. In its motion and brief, HDC asserted that it had "accepted the Claimant's figures [regarding TTD benefits] and began paying the Claimant at his correct temporary total disability rate of $126.15 as of January 20, 1996." (Id., Memorandum in Support of Motion for Summary Judgment at 2.) It further alleged that it owed no additional medical benefits because of other overpayments it had made to the claimant. (Id. at 3.) Finally, it argued that no attorney fees or penalties should be awarded because it had acted reasonably. (Id. at 3-4.)

         ¶21 Beaulieu opposed the Motion to Dismiss on account of disputes over medical benefits due. He further asserted that the penalty and attorney fee issues required a hearing. (Id., Petitioner's Response to Respondent's Motion for Summary Judgment.) In a reply brief, HDC countered that Beaulieu had failed to mediate the medical benefits at issue as required by sections 39-71-2401 and -2905, MCA, and that any further controversy over medical benefits was therefore not properly before the Court. (Id., Defendant's Reply Memorandum in Support of Motion for Summary Judgment at 2-3.) I rejected the mediation argument and denied the motion to dismiss because "[t]he amounts due for the medical costs mentioned in the petition have not been resolved." (Id., Order Denying Motion for Summary Judgment at 1.)

         ¶22 HDC thereafter filed a second motion for summary judgment asserting that it had paid the remaining medical bills and that there were no remaining issues to be adjudicated. (Id., Memorandum in Support of Second Motion for Summary Judgment.) It provided documentation for its payments. The motion was unopposed and on May 21, 1996, this Court entered summary judgment dismissing the petition with prejudice. (Id., Summary Judgment at 2.) The dismissal was unqualified; therefore, the judgment dismissed the claims against the UEF.

         B. 1997 Petition

         ¶23 On December 8, 1997, Beaulieu filed a second petition with respect to his April 16, 1994 industrial injury.[1] He again named both HDC and the UEF, alleging that at the time of his injury his employer "was either uninsured, or insured by Human Dynamics, Inc." (Beaulieu II, Petition for Hearing at 1). He alleged that HDC had failed to pay for blood tests and physicians' charges related to his injury. He alleged that HDC's refusal to pay for the medical services was unreasonable and that it should be assessed attorney fees and a penalty. (Id. at 3.)

         ¶24 As in Beaulieu I, HDC responded that it provided workers' compensation coverage for the claim. In its response, it admitted:

A. That on April 16, 1994, the Petitioner suffered an industrial injury arising out of and in the course of his employment with Eureka Pellet Mills, Inc., of Eureka, Montana.
B. That at the time of the injury, the Employer was insured under the provisions of the Montana Workers' Compensation Act through Human Dynamics, Inc.
C. That the Respondent, Human Dynamics, Inc., accepted liability for Petitioner's industrial accident and has paid temporary total disability benefits to the Petitioner during this period of time. The Petitioner, through his attorney, has requested the Respondent to pay the Petitioner's biweekly benefits on a timely basis.

(Beaulieu II, Response to Petition for Hearing at 1-2 (emphasis added).)

         ¶25 After filing its response in Beaulieu II, HDC moved to dismiss the UEF as a respondent on the ground that HDC had admitted liability for the claimant's industrial accident and that the Court did not have jurisdiction to adjudicate any dispute over coverage, i.e., the Court lacked jurisdiction to find that HDC did not insure Eureka with respect to Beaulieu's industrial injury. In its supporting memorandum, Dynamics stated:

The Petitioner [Beaulieu] has been receiving, and has been accepting, biweekly compensation benefits from Human Dynamics for almost four years now. The Petitioner has been receiving, and has been accepting medical benefits from Human Dynamics for almost four years now. In the pleadings in the instant matter, Human Dynamics has admitted that Eureka Pellet Mills was insured through Human Dynamics. That is all that should be necessary to establish that Human Dynamics is responsible for any benefits awarded to the Claimant, and that the Uninsured Employers Fund has no standing in the matter and is not a proper party to the matter.

(Id., Memorandum in Support of Motions to Dismiss for Lack of Jurisdiction at 4 (emphasis added).) The obvious purpose of HDC's motion was to defeat any attempt to litigate the allegation that Eureka was uninsured. As in Beaulieu I, HDC submitted itself to the jurisdiction of this Court by tendering itself as an insurer which had accepted liability for Beaulieu's claim.

         ¶26 Beaulieu II was resolved by HDC's payment of the medical expenses at issue. (See correspondence in Beaulieu II file.) Upon receipt of that payment, counsel advised that the matter had been resolved and asked the Court to dismiss the petitions without prejudice, which it did. (Id., April 1, 1998, Order Dismissing Without Prejudice.)

         C. Total Mechanical

         ¶27 Meanwhile, the litigation in Total Mechanical proceeded. A hearing officer for the Department determined that while HDC's client companies were uninsured during 1994, HDC had provided retroactive insurance which vitiated that lack of insurance. Based on his determination that retroactive insurance was in place, the hearing officer reversed the UEF's imposition of penalties on HDC's client companies.

         ¶28 On appeal, this Court found that HDC had failed to provide satisfactory evidence of retroactive insurance and that the client companies were in fact uninsured. It reinstated the penalties. (Beaulieu II, 2000 MTWCC 39.) That decision was affirmed on appeal to the Montana Supreme Court. 2002 MT 55.

         ¶29 In Total Mechanical, HDC never asserted that it was a de jure workers' compensation insurer in Montana. It also abandoned any claim that Montana workers' compensation laws were preempted by ERISA. Rather, its sole defense to the UEF penalties was based on its assertion that it had provided retroactive insurance coverage. It is thus clear that as of July 12, 1994, both HDC and its attorney, Mr. Utick, were aware that (1) HDC was not a workers' compensation insurer within the meaning of the Montana Workers' Compensation Act and that (2) Eureka was in fact an uninsured employer at the time of Beaulieu's industrial accident.

         D. The Present Petition

          ¶30 In his present petition, the claimant seeks payment for medications for his headaches.

         E. Facts Pertaining to Medications

         ¶31 For years, the claimant has been taking several medications for headaches related to his industrial accident. The medications include Depakote, Cafergot, and Naproxen, all of which he takes on a daily basis, and Stadol nasal spray on an as-needed basis. HDC paid for these medication from the time of his 1994 injury until early 2004.

         ¶32 The medical records provided to the Court show that the medications are medically necessary and related to the claimant's industrial injury. (Ex. 1.)

         ¶33 However, without notice to the claimant, HDC stopped paying for the medications in early 2004. The claimant discovered HDC's action in April 2004 when he attempted to refill his prescriptions and was refused on account of HDC's failure to reimburse the pharmacy for prior prescriptions. He testified as follows:

18
8Q. So what happened, then, to cause this
9 termination of your benefits?
10A. [Claimant] I haven't got a clue. The drug company,
11 Haines Drug, [h]as been real good. And I went in on
12 April 29th -- well, they told me about it two months
13 before that they were not getting paid, ...

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