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The Ninth Circuit upheld California's requirement Monday that holders of workers' compensation liens pay a $100 activation fee to keep their legacy liens alive.

Signed into law in 2012, California passed Senate Bill 863 to combat an acute "lien crisis" in the state's workers' compensation system.

Health care providers have the right to file liens for payment of their services against an award made in favor of an injured worker. Even if the injured worker does not prevail in a workers' compensation case, medical-legal lien claimants can still obtain payment as long as the expenses are proven credible and valid.

California's workers' compensation system has become overwhelmed by such liens, with a substantial backlog that continues to rapidly grow.  Workers' compensation courts lack the capacity to handle all the lien disputes that are filed, the California Commission on Health and Safety and Workers' Compensation says.

With a backlog of up to 800,000 liens in the Los Angeles Office of the Workers' Compensation Appeals Board, meritorious liens face delays, meaning the employers can deny these claims with impunity for years.

The backlog also results in frivolous liens remaining pending for years rather than being denied outright, leaving the employer paying to settle just to close the case.
 
In an effort to clear the backlog of liens, SB 863 imposes a $150 filing fee for all liens filed on or after Jan. 1, 2013, and a $100 "activation fee" for pending liens filed before Jan. 1, 2013. The activation fee must be paid at the time that a declaration of readiness is filed for a lien conference. A lien will be dismissed if the activation fee is not paid.

The medical providers argued that the activation fee is unconstitutional and secured an injunction from U.S. District Judge George Wu under the equal protection clause.

 A three-judge panel of the Ninth Circuit vacated that injunction Monday, however, after finding that the Legislature satisfied its rational interest in clearing the backlog by imposing the activation fee on entities it believes are responsible for the backlog,while exempting others.

Indeed 10 of the 11 top electronic lien filers are independent providers, the ruling states.
 

Targeting the biggest contributors to the backlog is rationally related to the goal of clearing the backlog, the panel said.
 

The plaintiffs failed to satisfy the burden that they were likely to refute "every conceivable basis" that might have supported the distinction between exempt and nonexempt entities, according to the ruling.
 

 "Also, the district court's skepticism of the notion that the exempted entities were not major contributors of the backlog ran afoul of the principle that 'a legislative choice is not subject to courtroom fact-finding,'" Judge Jacqueline Nguyen wrote for the court.

In addition to finding the plaintiffs unlikely to succeed on the merits of their equal-protection claim, the panel upheld Wu's dismissal of the providers' takings clause claim.

Workers' compensation liens are not protected property interests because they are unsecured and act as a placeholder for the possibility of future recovery, the court found.

"Since an injured workers' right to benefits does not vest until final judgment, the same is true for the liens at issue here, which are derivative of the underlying workers' compensation claim," Nguyen wrote.

The panel rejected the providers' argument that the activation fee constitutes a taking of the service that they have already provided to injured workers.

"Plaintiffs here were never under any compulsion to provide services," Nuyen wrote. "Rather, they rendered these services freely, with the expectation that they might be compensated through the lien system. Provided that the activation fee is paid, SB 863 does not affect plaintiffs' ability to obtain payment on outstanding liens."

As for the due-process claim, Nguyen said the providers have not been "thrust" into the judicial process and are entitled to settle lien disputes out of court.

 "The lien activation fee here is more akin to filing fees in conventional litigation scenarios, in which the Supreme Court has rejected due process challenges," Nguyen said.
 
Even if the lien was assumed to be analogous to a tax, "its retroactive effect does not violate due process because its retroactivity is justified by a rational legislative purpose," the opinion states.

from Courthouse News Service, published late yesterday - http://www.courthousenews.com/2015/06/29/workers-comp-lien-scheme-in-ca-upheld.htm