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Rusch v. Southeast Alaska Regional Health Consortium

Supreme Court of Alaska

December 6, 2019

Sandra J. RUSCH, Appellant,
SOUTHEAST ALASKA REGIONAL HEALTH CONSORTIUM and Alaska National Insurance Company, Appellees. Brenda Dockter, Appellant,
Southeast Alaska Regional Health Consortium and Alaska National Insurance Company, Appellees.

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[Copyrighted Material Omitted]

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          Appeals from the Alaska Workers’ Compensation Appeals Commission. Alaska Workers’ Compensation, Appeals Commission Nos. 17-001, 17-002

         J. John Franich, Franich Law Office, LLC, Fairbanks, for Appellants.

         Michael A. Budzinski, Meshke Paddock & Budzinski, Anchorage, for Appellees.

         Before: Bolger, Chief Justice, Winfree, Stowers, Maassen, and Carney, Justices.


         STOWERS, Justice.

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          An attorney began representing two injured workers after both encountered difficulties representing themselves in their workers’ compensation claims against the same employer. Both claimants then successfully resolved their claims through mediation, with both receiving substantial settlements. The parties were unable to resolve the question of their attorney’s fees, so the Alaska Workers’ Compensation Board held hearings on that issue. The Board limited the witnesses at the hearings and ultimately awarded significantly reduced attorney’s fees in both claims. The Alaska Workers’ Compensation Appeals Commission affirmed the Board’s decisions. Because the Commission incorrectly interpreted our case law about attorney’s fees, because the Board denied the claimants the opportunity to present witnesses, and because the amount of attorney’s fees awarded to both claimants was manifestly unreasonable, we reverse in part the Commission’s decisions and remand for further proceedings.


          A. Factual Summary Of Each Case Through Settlement

          1. Rusch v. Southeast Alaska Regional Health Consortium

          In June 2012 Sandra Rusch injured her back while working for Southeast Alaska Regional Health Consortium (SEARHC) at its clinic in Klawock. Her healthcare providers imposed various lifting restrictions while she received treatment. SEARHC filed a controversion in October 2012 claiming it had no evidence to support time loss from work. Rusch had fusion surgery on her lumbar spine in January 2013. Medical records show that doctors disagreed about the degree of "incorporation" of the fusion. After the surgery Rusch’s healthcare providers continued restrictions on lifting.

         In January 2013 SEARHC paid Rusch temporary partial disability (TPD) from June through December 2012 and began to pay temporary total disability (TTD) as of early January. At about the same time SEARHC sent a form notice to the Reemployment Benefits Section of the Board informing it that Rusch had "been totally unable to return to [her] employment at the time of injury for 45 consecutive days as a result of the injury," beginning on June 24, 2012.[1] Its insurance adjuster handwrote that Rusch had received TPD from June 2012 until mid-December 2012 and had begun to receive TTD in early January 2013. The only communication in the record from the Board about reemployment benefits is a brief email to Rusch asking her to call if she had questions.

          Rusch was laid off from her job, purportedly due to a reduction in force, in April 2013. Rusch had been disciplined the previous month for an incident she said was related to "not lifting up to 50 pounds" as her job description required. Rusch’s surgeon had released her to "light duty as tolerated" effective March 1, 2013. The position she previously held was advertised the month after her layoff and included the ability to lift 70 pounds as a job requirement.

          In 2014 SEARHC offered Rusch "$15,000.00 in medical benefits to help defray the cost of additional care other than fusion revision, if medically necessary within the first year following Board approval" of a settlement; in exchange Rusch would give up all other compensation. The proposed agreement made clear that Rusch’s future medical benefits would be "restricted," specifically providing that SEARHC would "be responsible

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for medical and related transportation benefits relating only to fusion revision, if medically necessary within one year from the date of [Board] approval or rejection of this Agreement." Rusch initially agreed, but she did not sign SEARHC’s proposed settlement document. SEARHC’s attorney, Theresa Hennemann, informed Rusch in May 2015 that her settlement authority had lapsed and that the workers’ compensation insurance carrier would be closing its file related to her claim.

          Attorney David Graham of Sitka entered an appearance and filed a written claim on Rusch’s behalf in June 2015, seeking a number of compensation benefits including TTD, permanent partial impairment (PPI), medical costs, and reemployment benefits, and also claiming unfair or frivolous controversion. SEARHC filed an answer and a controversion in late July denying that any further compensation was owed. In October SEARHC offered to settle all claims for a total of $15,000, with $10,000 for future medical benefits and $5,000 for attorney’s fees. Rusch did not accept the offer.

          The case was contentious, with a number of discovery disputes. The parties later resolved all claims except attorney’s fees through mediation. The settlement agreement preserved Rusch’s claim for attorney’s fees and costs and required SEARHC to pay $1,000 to one medical provider and an additional $100,000 to Rusch. The Board approved the settlement in early August 2016.

          2. Dockter v. Southeast Alaska Regional Health Consortium

          In February 2014 Brenda Dockter injured her left knee while working for SEARHC in Sitka. After physical therapy and medication did not resolve her pain complaints, she had arthroscopic knee surgery, which improved her symptoms but did not resolve them entirely. All doctors who examined her, including SEARHC’s orthopedic physicians, said she would at some point need further knee surgery as a result of the work injury.

          In June 2015, based on its doctor’s opinion, SEARHC controverted physical therapy and two medications. Dockter’s treating orthopedic physician recommended in October 2015 that she undergo a partial knee replacement. The surgeon’s office asked SEARHC to preauthorize the surgery; through its attorney, Hennemann, SEARHC informed the doctor it was "not in a position to preauthorize surgery at this time " [emphasis in original] because in its view Dockter’s pain complaints did "not appear to be supported by objective medical evidence." If SEARHC sought an opinion from one of its orthopedic physicians about the partial knee replacement, it did not submit that opinion to the Board.

          After Dockter sought clarification, Hennemann reiterated SEARHC’s refusal to preauthorize the surgery, informing Dockter that she could "make [her] own arrangements." As an alternative SEARHC offered to settle the claim on the following terms: SEARHC would pay medical expenses for the partial knee replacement and follow-up care (excluding physical therapy) and a lump sum of $21,024 (representing TTD, PPI, and a sum for physical therapy); in exchange Dockter would waive all future workers’ compensation benefits except for follow-up care related to the partial knee replacement occurring within eight months of the Board’s approval of the settlement.

         Dockter filed a written claim seeking unspecified medical benefits in August 2015, and the Board held its first prehearing conference on the claim the following month. At this prehearing conference, SEARHC indicated it had "accepted compensability for medical ... costs relating to [Dockter’s] left knee" with limited exceptions unrelated to the partial knee replacement. A second prehearing conference was held in late November "to review the status of [Dockter’s] injuries/treatment and claims." Dockter explained she had requested preauthorization for her knee surgery, and SEARHC told the prehearing conference officer that "no controversion [was] in place regarding the knee injury/treatment." According to the prehearing conference summary, "[w]hen asked why [SEARHC] will not pre-authorize the surgery, [SEARHC] stated that ‘they were not saying that the surgery was not medically necessary, just that there is not yet any objective evidence to support

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the surgery.’ " The prehearing conference officer, after quoting AS 23.30.095(a),[2] thought one issue — whether Dockter was "entitled to an order" requiring SEARHC to pay for the surgery — was "ripe for a hearing" and set another prehearing conference to schedule this hearing.

          Hennemann wrote to the Board shortly afterward, taking the position that SEARHC was "simply choosing to exercise [its] statutory right" to "take up to 30 days to consider whether payment or denial should issue after" the doctor billed it for the surgery. SEARHC objected to a prehearing conference on scheduling because Dockter had not filed an affidavit of readiness for hearing.

          On December 8 Graham entered an appearance for Dockter and filed another written claim on her behalf. The parties agreed they were not yet ready for a hearing. After obtaining discovery from SEARHC, Graham wrote a demand letter to Hennemann in early February 2016; there he summarized the medical evidence supporting the surgeon’s recommendation and informed her that because SEARHC refused to preauthorize the surgery, the doctor would not perform the surgery without prepayment, which Dockter could not afford. Graham told Hennemann that he would "request further assistance from the Board" if SEARHC did not clearly communicate to the surgeon that it would preauthorize the surgery by a certain date.

          Hennemann responded that SEARHC "would not stand in the way of" a hearing on what she called an "advisory ruling[ ]" from the Board about the compensability of the surgery and suggested as an alternative that Dockter "find a different physician who would not require payment before surgery"; she indicated she would "encourage" her clients to "consider" a request for a change in physicians if Dockter found such a surgeon.

          On February 9 Dockter filed an affidavit of readiness for hearing, a request for an emergency conference, and a request for "an immediate hearing" on the "prospective determination of [the] compensability" of the knee surgery. On February 18 SEARHC told the Board it agreed the knee surgery "would be compensable and payable under the Act," making a hearing on that issue unnecessary. It later insisted, however, that it had not preauthorized the surgery. Dockter had the surgery in March 2016.

          The parties mediated the remaining disputes and reached agreement on all issues except attorney’s fees. The Board approved the settlement in August 2016. Under its terms, Dockter agreed to release SEARHC from further claims (except attorney’s fees and costs) in exchange for an additional $122,500.

          B. Procedure In Both Cases Following Mediation

          Billing records from both attorneys suggest they remained in contact with the mediator about the attorney’s fees disputes after settlement. Hennemann’s July 2016 billing records included entries related to a "memo to mediator" about fee issues as well as communications with the mediator and both her clients about fee issues. Hennemann submitted her billing records only through July 2016, so the record does not reveal whether she communicated further with the mediator in August. Graham submitted to the mediator a document he called a "mediation brief" that addressed specific concerns raised by SEARHC as well as the mediator’s responses to them. No mediation occurred, however, and the mediator wrote to the attorneys in September acknowledging their request for a hearing on attorney’s fees, "which the parties were unable to resolve through mediation."

          The Board scheduled two hearings on the same day to resolve the attorney’s fees disputes in both cases. The lead-up to the hearings was contentious. The prehearing conference summaries set an October 19 deadline for submission of witness lists but also allotted time for argument equal to the total time scheduled for hearing. Hennemann wrote to the Board on October 14 because Graham

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intended to call witnesses at the hearings and she thought this was "inconsistent with the discussions and agreements for proceeding." Graham responded that on October 7 he had spoken with a Board employee who told him he "would not need to request amendment or clarification of the prehearing conference summary in order to" present witnesses at the hearing. The issue was not addressed until the hearing.

          Graham submitted an affidavit of fees for each case, seeking an hourly fee of $425. He sought payment for 277.55 hours in Rusch’s case and 180 hours in Dockter’s case. The witness list in each case included Graham, three other attorneys, and the claimant in that case. The proposed attorney witnesses either practiced workers’ compensation law in Alaska or were familiar with Graham’s legal experience.

         The Board held both hearings on October 25, 2016. The Board decided to "go through some preliminary issues" in both cases at once, then proceed separately with argument related to each case individually. Both claimants attended telephonically (and later testified) during the joint proceeding. SEARHC objected to all of the witnesses except Graham, although it complained that allowing Graham to testify would give the claimants a "time advantage" because the parties had an equal amount of argument time. It argued that testimony from the other witnesses (including the claimants) was irrelevant or unnecessary because the information the witnesses might provide was available in the Board’s "system" or because SEARHC was willing to stipulate to certain facts, such as the difficulties injured workers face in finding attorneys to represent them, "particularly in the Juneau venue and the Fairbanks venue." SEARHC took the position that what it called "enhanced fees" were only allowed "based upon an attorney’s experience in the field of workers’ compensation." Graham argued that all factors in the Alaska Rules of Professional Conduct[3] as well as workers’ compensation law were relevant to the reasonableness of the requested fees, making the attorney witnesses’ testimony directly relevant. He contended that the claimants should be allowed to testify because factors relevant to an attorney’s fees award included "issues relating to the client."

          The Board permitted both claimants to testify, but decided none of the attorneys, including Graham, could do so. The Board said that "case law" (which it did not identify) directed the Board to consider only experience in workers’ compensation law when evaluating an attorney’s fees request. The Board decided Graham had "been afforded the opportunity to provide information in his brief" and declined to "provid[e] extra time for testimony." The Board decided the testimony of other witnesses was either irrelevant, repetitious, or both. The Board told the parties it would gather information from its system about the hourly rates received by workers’ compensation attorneys and Graham’s experience in workers’ compensation cases to use in deciding the case.

         Graham asked the Board to clarify how he could present evidence about his experience because "[a]rgument is not evidence." He pointed out that the only evidence in the record was his fee affidavit, which did not contain information about his experience. The hearing officer said it was "difficult to distinguish between a legal argument and testimony" from Graham and indicated the Board had "the record of ICERS,"[4] which she characterized as "our workers’ compensation system." She saw no need to provide Graham with a copy or a printout of the information the Board would use because decisions and orders were "in the public sphere"; she told Graham that he could ask for reconsideration of the Board’s decision if "there’s something that’s incorrect or misstated or something that [he] felt wasn’t considered that should have been." Graham

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offered to submit a declaration he had prepared that summarized his experience and discussed the contingent nature of both personal injury and workers’ compensation proceedings. SEARHC did not object, although it was concerned that it would not "have means of questioning or challenging it." The declaration was admitted as evidence.

          The declaration briefly outlined Graham’s experience, showing he had more than 35 years experience practicing law in multiple states. Most of his work was in "representing personal injury and workers’ compensation claimants on a contingent fee basis," and he estimated he had "formally represented hundreds of personal injury clients and dozens of worker[s’] compensation clients," including about 12 in Alaska. But he estimated he had "personally reviewed the status and the legal and factual issues of more than 500 Alaska workers’ compensation claimants" in over 20 years of practicing in Alaska; had provided to many claimants "a number of hours" of time, mostly pro bono; and had "been very selective in entering [an] appearance" in workers’ compensation cases, in part due to "the difficulties presented for earning a fee." Graham elaborated in his argument to the Board — which we treat as a proffer of the testimony he would have provided about his experience had he been permitted to testify — asserting that he had also practiced in "federal jurisdictions" and had "handled workers’ compensation cases in Colorado, in New Mexico, and ... in the federal ...

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