Appendix — Allstate Insurance v. Baksalary
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b S FILED:
64-765" ;.
No. , NOY 14 {964
— ALEXAND STEVAS
IN THE C
—
-
Supreme Court of the United States
October Term, 1984
ALLSTATE INS. COMPANY, ARGONAUT INS. COMPANY,
HARLEYSVILLE INS. COMPANY, OHIO CASUALTY GROUP OF
INS. COMPANIES, ROYAL INS. COMPANY, SUN COMPANY, INC.,
TRAVELERS INS. COMPANY and WAUSAU INS. COMPANIES,
Appellants/Objecting Members of Defendant Class,
VS.
RICHARD BAKSALARY, WILLIAM JONES, MORRIS TUCKER,
CHARLES SAMUEL, Individually and on behalf of
ail others similarly situated,
Appellees/Plaintiffs,
and
PAUL J. SMITH, C. JOHN URLING, JR., WILLIAM J. SHEPPARD,
GRACE M. SLOAN, THE STATE WORKMEN'S INSURANCE FUND,
PENNSYLVANIA MANUFACTURERS ASSOC. INS. COMPANY,
AMERICAN MUTUAL LIABILITY INS. COMPANY, THE SCHOOL
DISTRICT OF PHILADELPHIA, BITUMINOUS CASUALTY CORP.
and all other insurance carriers and/or self-insured employers similarly
situated,
Defendants (Appellees).
On APPEAL FROM THE UNITED STATES District CouRT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA.
APPENDIX TO JURISDICTIONAL STATEMENT
RICHARD D. HARBURG
SWARTZ, CAMPBELL & DETWEILER
1700 Land Title Building
Philadelphia, Pennsylvania 19110
Phone: (215) 564-5190
Attorneys for Appellants
Batavia Times Publishing Co. ad
Edward W. Shannon
Philadelphia. Pa. (215) 232-8181
)
3600
TABLE OF CONTENTS.
Documents Date Page
Final Opinion and Order co eee la
Order (Amendment) ee 33a
Opinion on Merits and Order
for Submissions | Perr 36a
Notice of Appeal—
Circuit Court 8/20/84 ....... 84a
Notice of Appeal—
Supreme Court ak. oe 87a
Memorandum and Interim
Order ee 9la
Joint Motion and Proposed
Consent Decree : Gee ss seks 102a
Order (Preliminary
Approval) IN so dia'e' 13la
Appearance (Objecting
Defendants) 2 ere 135a
Statement/Objections
(Objecting Defendants) i. eee 137a
Appearance (Objecting
Defendants) if) 144a
Appearance (Objecting
Defendants) Spee 146a
Order—Circuit Court
Stay of Proceedings 10/29/84 ....... 148a
Designation of Corporate
Relationships 150a
la
APPENDIX
Final Opinion and Order
IN THE UNITED STATES DISTRICT COURT
For the Eastern District of Pennsylvania
Civil Action No. 76-429.
RICHARD BAKSALARY, WILLIAM JONES,
MORRIS TUCKER, and CHARLES SAMUEL
Individually and on behalf of all others similarly
situated,
Plaintiffs,
v.
PAUL. J. SMITH, C. JOHN URLING, JR.,
WILLIAM J. SHEPPARD, GRACE M. SLOAN,
THE STATE WORKMEN’S INSURANCE FUND,
PENNSYLVANIA MANUFACTURERS’
ASSOCIATION INSURANCE COMPANY,
AMERICAN MUTUAL LIABILITY INSURANCE
COMPANY, TH SCHOOL DISTRICT OF
PHILADELPHIA, BITUMINOUS CASUALTY
CORPORATION, and all other insurance carriers
and/or self-insured employers similarly situated,
Defendants.
Filed July 30, 1984; MICHAEL E. KUNZ, Clerk.
By (Illegible) Dep. Clerk.
Before: ADAMS, Circuit Judge, *
GREEN and POLLAK, District Judges.
* Honorable Arlin M. Adams, United States Circuit Judge, United
States Court of Appeals for the Third Circuit, sitting by designation.
2a
Final Opinion and Order.
OPINION
Per Curiam July 30, 1984
I. INTRODUCTION
We have previously resolved the central constitutional
issues in this case. Baksalary v. Smith, 579 F. Supp. 218
(E.D. Pa. 1984). We now address the question of what
remedy our prior holdings require or permit. The named
parties to this bilateral class action have submitted for
approval a proposed consent decree which undertakes to
resolve all but one of the remaining remedial issues. The
proposed consent decree accompanies this Opinion as an
appendix. The remedial issue not dealt with by the
consent decree has been submitted to the court to be
determined as a litigated judgment.
For reasons developed at some length in section II
hereof, we have determined that the proposed consent
decree represents a fair, adequate, and reasonable
resolution of the remedial questions which it addresses.
The accompanying Order therefore approves it pursuant
to Federal Rule of Civil Procedure 23(e). Further, for
reasons elaborated in section III, the accompanying
Order resolves the single remaining litigated remedial
issue.
Our previous Opinion has described in detail the facts
and procedural history of this litigation through
February 1, 1984. See Baksalary, 579 F. Supp. at 219- |
224. In this section, we review that history briefly before
describing in detail the issues now before the court.
This litigation commenced in 1976. In it, plaintiffs
successfully challenged the constitutionality of the
automatic supersedeas provision of section 413(a) of the
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Final Opinion and Order.
Pennsylvania Workmen’s Compensation Act, Pa. Stat.
Ann. tit. 77, §774 (Purdon Supp. 1983).! This action has
proceeded before a three-judge district court convened
pursuant to 28 U.S.C. §2281 (repealed). (That court
initially consisted of Circuit Judge Adams and District
Judges Fogel and Green. After Judge Fogel left the
bench Judge Pollak replaced him on the three-judge
court.) Plaintiff and defendant classes were certified
pursuant to Federal Rule of Civil Procedure 23(b)(2). The
plaintiffs’ class includes ‘‘all persons who have been or
will be receiving benefits pursuant to the Pennsylvania
Workmen’s Compensation Act and who have had or will
have such benefits terminated, suspended, reduced or
otherwise deprived without advance notice and
opportunity for a prior evidentiary hearing.’’ Order of
Judge Fogel (March 27, 1978). The defendants’ class
includes ‘‘all insurance companies, mutual associations
and employment establishments authorized to insure the
payment of Pennsylvania Workmen’s Compensation
benefits who have acted, or will act, to terminate,
'The term ‘‘automatic supersedeas provision’ has been used in this
litigation to refer to the first sentence of Pa. Stat. Ann. tit. 77, §774
(Purdon Supp. 1983). That sentence provides:
The filing of a petition to terminate or modify a notice of
compensation payable or a compensation agreement or award as
provided in this section shall operate as a supersedeas, and shall
suspend the payment of compensation fixed in the agreement or
by the award, in whole or to such extent as the facts alleged in
the petition would, if proved, require only when such petition
alleges that the employe has returned to work at his prior or
increased earnings or where the petition alleges that the
employe has fully recovered and is accompanied by an affidavit
of a physician on a form prescribed by the [Bureau of Workers’
Compensation] to that effect which is based upon an
examination made within fifteen days of the filing of the
petition.
4a
Final Opinion and Order.
suspend, reduce, or otherwise deprive benefits to
previously eligible claimants without advance notice and
opportunity for a prior evidentiary hearing ... .’’ Jd.
Discovery was extensive and took years to complete.
After hearing and argument on April 7, 1983, we filed an
Opinion, on February 1, 1984, which concluded
that operation of the automatic supersedeas
authorized by section 413 of the Pennsylvania
Workmen's Cempensation Act involves conduct
reasonably attributable to the state and that section
413 does not accord worker’s compensation
recipients due process. Thus, plaintiffs have made
out a violation of 42 U.S.C. $1983 (Supp. V 1981).
Plaintiffs are entitled to entry of a judgment
declaring the unconstitutionality of the automatic
supersedeas provision of section 413.
Baksalary, 579 F. Supp. at 233.’
After having decided the legal and factual issues
leading to a determination of liability, we found
ourselves with little guidance from the parties as to the
appropriate form of relief. The parties had concentrated
their legal arguments on the question of the automatic
supersedeas -provision’s constitutionality and had not
given any extended treatment to the remedy which a
finding of unconstitutionality would require or permit.
Accordingly, we did not accompany the February 1
Opinions with a remedial Order. Instead, we ordered the
parties to submit a joint proposed form of remedial
order, or alternative proposed remedial orders, by
February 15, 1984.
* Judge Adams’ separate Opinion, which Judges Green and Pollak
joined, reached the same conclusion. 579 F. Supp. at 237.
5a
Final Opinion and Order.
On February 14, 1984, counsel for plaintiffs informed
Judge Poilak’s chambers that the parties had not agreed
on a joint proposed form of order, but that the court
would receive several alternative remedial requests from
the various named parties. On receipt of this
information, the court established a schedule which
permitted the parties fully to brief their respective
positions on the remedy appropriate to this case.
On February 15, 1984, eight proposed forms of
remedial order were filed: one by plaintiffs, one by the
Commonwealth Defendants,* two by the State
Workmen's Insurance Fund (‘‘SWIF’’) and four by the
School District of Philadelphia and several private
insurance companies. The parties submitted initial briefs
in support of their positions on March 6, 1984, and reply
briefs on March 12.
Upon examination of the proposed forms of order and
the briefs supporting them, we determined that several
of the remedial issues in dispute did not require oral
argument. On March 15, 1984, we filed a Memorandum
and Order which decided these remedial questions. First,
we declared that any invocations of the automatic
supersedeas provision after March 15, 1984, would
violate the due process clause of the Fourteenth
Amendment. Order, 41 (March 14, 1984). We also
expressly reserved judgment on whether any invocations
of the automatic supersedeas between February 1, 1984,
and March 15, 1984—if in fact any had _ taken
place—would be subject to a later declaration of
* Throughout this litigation the parties and the court have referred to
defendants Paul J. Smith, C. John Urling, William J. Sheppard,
Grace M. Sloan, and their successors in their official capacities, as the
“Commonwealth Defendants. "’
6a
Final Opinion and Order.
invalidity. Memorandum at 4 (March 15, 1984). We also
were at pains to make clear that this litigation concerned
the automatic supersedeas provision of section 413(a) of
the Pennsylvania Workmen's Compensation Act, and
only that provision. Memorandum at 4-5; see also
Baksalary, 579 F. Supp. at 233 (‘‘Invalidation of the
automatic supersedeas provision does not call for
invalidation of any other provision of the Workmen's
Compensation Act. . .’’).
The March 15 Order also considered both plaintiffs’
and defendants’ requests for injunctive relief. Plaintiffs
desired immediate reinstatement of worker's
compensation benefits and complete retroactive recovery
for all members of the plaintiff class against whom a
member of the defendant class had invoked the
automatic supersedeas provision, and who had not
received a final decision from a referee. Defendants, on
the other hand, all took the position that this court
should not award relief to any individual against whom
the automatic supersedeas provision was invoked prior
to the date of the final remedial order in this case.
Certain defendants also requested that this court’s
injunctive relief provide a procedure alternative to the
automatic supersedeas provision which would permit
self-insured employers and insurers to suspend worker’s
compensation benefits prior to a final decision by a
referee on a termination petition.
We felt that oral argument on the appropriate nature
and scope of injunctive relief would be helpful. But we
concluded that we did not wish to hear argument on
proposals that this court frame a procedure to be
substituted for the automatic supersedeas we had found
invalid. We stated that we
Ta
Final Opinion and Order.
see no circumstances under which we would grant
injunctive relief mandating adoption of a procedure
of our selection to replace the automatic supersedeas
provision. A federal court cannot enact state law.
Further, we do not read the Workmen's
Compensation Act to require adoption of any of the
proposed alternative procedures.
Memorandum at 6-7 (March 15, 1984).
The March 15 Memorandur: and Order left open
several broad areas of possible remedy:
First, we did not resolve the dispute between plaintiffs
and the Commonwealth Defendants over whether this
court should grant any injunction at all covering future
invocations of the automatic supersedeas provision. The
Commonwealth Defendants. argued that a declaration
alone sufficed. We shall refer to that question as the
prospective injunction question.
Second, we did not decide whether, and under what
circumstances, a self-insured. employer or insurer would
be ordered to resume payment of benefits to members of
the plaintiff class against whom the employer or insurer
had invoked the automatic supersedeas provision. We
shall refer to this question as the resumption question.
Third, we left undetermined the question whether, and
under what circumstances, a self-insured employer or
insurer would be ordered to pay retroactive benefits to
members. of the plaintiff class against whom the
employer or insurer had invoked the automatic
supersedeas provision. We shali refer to this question as
the back-benefits question.
8a
Final Opinion and Order.
Fourth, we did not address plaintiffs’ request for a
declaration of their entitlement to recovery of reasonable
attorneys’ fees pursuant to 42 U.S.C. $1988.
The March 15 Order scheduled oral argument on these
four issues for March 28, 1984. That date was
subsequently changed to April 3. On the morning of
April 3, counsel jointly advised the court that they were
finally engaged in settlement discussions and those
discussions appeared likely to be fruitful. Accordingly,
we assented to a continuance of the argument at least
for a few hours. In mid-afternoon of April 3, counsel
announced on the record tentative agreement on the
substance—albeit not the wording—of a _ proposed
consent decree which counsel believed the named parties
would ratify. Accordingly, the scheduled argument was
cancelled and the court, by Order filed on April 4, 1984,
established a schedule for the submission of a proposed
consent decree. The schedule announced on April 4 was
modified by Order of April 19. On April 27, 1984, the
named parties submitted a joint motion for preliminary
approval of a proposed consent decree. We suggested one
amendment to the proposed decree, which the parties
agreed to. By Order of May 14, 1984, we preliminarily
approved the proposed consent decree, as amended, and
approved transmission of notice packages to members of
the plaintiff and defendant classes.
The proposed consent decree purports to settle all
outstanding remedial questions but one. Plaintiffs have
demanded immediate reinstatement and back benefits for
any member of the plaintiff class against whom a
member of the defendant class may have invoked the |
automatic supersedeas provision after February 1, 1984,
9a
Final Opinion and Order.
the date of our liability. Opinions in this matter. The
named defendants represented that any named defendant
who had invoked the automatic supersedeas between
February 1 and March 15, the date of our declaratory
Order, had done so inadvertently and had taken steps to
reinstate the terminated employee with full back
benefits. The named defendants felt, therefore, that they
could not, on this issue, speak for other members of the
defendant class who might have invoked the automatic
supersedeas between February 1 and March 15 and who
might have felt entitled to have done so. Therefore, the
named defendants represented that they could take no
position on plaintiffs’ demands for reinstatement and
' back benefits on behalf of post-February 1 pre-March 15
terminees. The parties desired to submit this question to
the court for a litigated judgment.
As required by Federal Rule of Civil Procedure 23(e),
the named parties arranged for transmission of notice of
the proposed consent decree to all known members of the
plaintiff and defendant classes. These non-named class
members had the opportunity to’ comment and object to
the proposed settlement until June 13, 1984. Quite a
number of both plaintiffs and defendants availed
themselves of that opportunity. We also used the same
procedure to provide non-named defendants an
opportunity to respond to plaintiffs’ claims for
reinstatement and back benefits on behalf of post-
February 1 pre-March 15 terminees.
This court held a hearing on June 18, 1984. At that
hearing, several objectors made orai presentations in
opposition to the proposed consent decree and counsel.
for the named parties m.Je presentations in support of
en
4
10a
Final Opinion and Order.
the proposed decree. In addition, several defendants
made oral presentations in opposition to, and plaintiffs
made a presentation in support of, the relief requested
by plaintiffs for post-February 1 pre-March 15 terminees.
In the course of the hearing, a substantial issue arose
concerning the import of the proposed consent decree for
a claimant’s entitlement to receive both worker’s
compensation benefits and salary when the claimant has
returned to work at the same or higher wage. We gave
the parties until June 25 to make further submissicns on
that issue. They have made such further submissions.
Therefore the entire case is now before the court for a
decision on the fairness of the proposed consent decree
and on the propriety of the relief requested by plaintiffs
for post-February 1 pre-March 15 terminees.
II. FAIRNESS OF PROPOSED CONSENT DECREE
A. Applicable Standards
Federal Rule of Civil Procedure 23(e) provides that ‘‘[a]
class action shall not be dismissed or compromised
without the approval of the court, and notice of the
proposed dismissal or compromise shall be given to all
members of the class in such manner as the court
directs.’’ We have already approved the manner of
notifying class members and we are satisfied that the
parties have provided notice as suggested in their joint
motion for preliminary approval of the proposed consent
decree. Thus, we must now determine whether to
approve the proposed compromise.
In considering whether approval is appropriate, we
must decide whether ‘‘the proposed settlement [is] fair,
adequate and reasonable.” Girsh v. Jepson, 521 F.2d 153,
lla
Final Opinion and Order.
157 (3d Cir. 1975). In making that determination, the
district court carries out a “fiduciary responsibility, as
the guardian of the rights of the absentee class members
.... Id. The determination ordinarily requires that the
district court make certain findings of fact. See Girsh,
521 F.2d at 159. Typicaliy this involves scrutiny of a list
of nine factors—albeit not an exclusive list—enunciated
by the Court of Appeals for the Second Circuit in City of
Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir.
1974), and adopted by our Court of Appeals in Girsh:
(1) the complexity, expense and likely duration of
the litigation .. .; (2) the reaction of the class to the
settlement .. .; (3) the stage of the proceedings and
the amount of discovery completed .. .; (4) the risks
of establishing liability ...; (5) the risks of
establishing damages ...; (6) the risks of
maintaining the class action through the trial . . .; (7)
the ability of the defendants to withstand a greater
judgment; (8) the range of reasonableness of the
settlement fund in light of the best possible
recovery ...; (9) the range of reasonableness of the
settlement fund to a possible recovery in light of all
the attendant risks of litigation ....
521 F.2d at 157; cf. 3B J. Moore & J. Kennedy, Moore’s
Federal Practice 423.80[4] at pp. 23-520 to 23-521 (2d ed.
1982).
While we view ourselves as fiduciaries for the absent
class members, and while we shall attempt to decide
whether the proposed consent decree provides a fair,
adequate, and reasonable settlement of this matter, we
believe that this case presents a situation somewhat out
of the ordinary. The named parties achieved a tentative
12a
Final Opinion and Order.
settlement on the very day scheduled for oral argument
on certain unresolved remedial issues. We _ had
determined two months earlier that invocation of the
automatic supersedeas provision violated the due process
clause, and we had already rejected certain requested
forms of relief and granted others. In effect, the court’s
only remaining tasks were to elaborate the remedial
implications of our ruling on liability within the range of
remedies laid out in our March 15 Memorandum. This is
not the typical case where settlement evaluations require
predictions of the probability that the tribunal would
reach one or another substantive result; the central
issues had been resolved.
With these thoughts in mind, we analyze, in the light
of our prior rulings in this case, the terms of the
proposed consent decree and the various objections to
the proposed decree which have been advanced. We have
considered whether the proposed consent decree is within
the range of possible remedial results flowing out of our
liability opinions of February 1 and our partial remedial
decision of March 15. We have found no aspects of the
proposed consent decree inconsistent with those rulings
and we find the proposed consent decree well within the
range of reasonably expectable outcomes based upon our
earlier rulings. Further, many of the objections raised to
the proposed consent decree suggest relief inconsistent
with our earlier rulings. We do not think that any such
objection bears upon the fairness, adequacy, or
reasonableness of a settlement proposed after the court
has made rulings adverse to the objector’s position.
We begin with a discussion of the reasons why we
believe that this proposed consent decree fairly balances
13a
Final Opinion and Order.
the risks faced by the plaintiff class and the risks faced
by the defendant class in anticipating our remedial
decision. We next turn to a discussion of particular
objections to the proposed consent decree.
B. Evaluation of Proposed Consent Decree as Against
the Range of Possible Outcomes
In our view both plaintiffs and defendants faced
substantial risks in the remedial stage of this litigation.
The proposed settlement replaces those risks with a
proposed certainty advantageous to both sides. Thus, the
proposed decree gives plaintiffs a much more favorable
result than the most pro-defendant result possible under
our prior rulings. At the same time, the proposed decree
gives defendants a much more favorable result than the
most pro-plaintiff result possible under our prior rulings.
So viewed, the proposed consent decree provides a fair
accommodation of the parties’ extreme positions.
Although this court’s Opinions of February 1, 1984,
did not foreclose the possibility that our remedial decree
would include injunctive relief, the single remedial
provision plainly required by those Opinions was a
d®claration of the invalidity of the challenged statute.
See Baksalary, 579 F. Supp. at 233. We made that
declaration on March 15. On March 15 we specifically
adverted to the Commonwealth Defendants’ argument
against any relief other than a declaration of invalidity.
Memorandum at 5-6 (March 15, 1984). The
Commonwealth Defendants urged the court to permit the
ordinary enforcement mechanisms of the Bureau of
Workers’ Compensation to implement any declaration of
this court. That comity argument had a certain force. It
l4a
Final Opinion and Order.
certainly presented plaintiffs with a substantial risk that
they would receive no relief beyond that granted on
March 15.
In addition, plaintiffs faced the risk and delay of an
appeal.‘ The appellate court might have overturned this
court’s legal pronouncement of February 1 and any
aspect of the relief which we might have granted. In
addition, even if, in the event, plaintiffs’ position was
ultimately sustained on appeal, this court, or the
appellate court, might have stayed enforcement of some
or all of this court’s decree pending appeal—thereby
postponing, for perhaps an additional year, any effective
vindication of the rights of plaintiff class members. See
Baksalary, 579 F. Supp. at 224-225.
Defendants also faced considerable risks in the
remedial portion of this litigation. Defendants argued
strongly for no recovery of back benefits, no resumption
of benefits, and a prospective injunction dating from
several weeks after the final remedial order in this case.
For their insistence on purely prospective relief to have
prevailed, defendants would have to have persuaded this
court that our case met the three-factor nonretroactivity
‘ Plaintiffs also faced the possibility that there would be not one
appeal but two appeals pursued concurrently. 28 U.S.C. $1253
provides, of course, that an appeal from a three-judge district court's
grant (or denial) of an injunction goes to the Supreme Court. See Poe
v. Gerstein, 417 U.S. 281 (1974); Oldroyd v. Kugler, 461 F.2d 535, 539
(3d Cir. 1972). But it appears that an appeal! from so much of a three-
judge district court’s judgment as grants (or denies) declaratory relief
goes to the court of appeals. Gerstein v. Coe, 417 U.S. 279 (1974).
15a
Final Opinion and Order.
test set out in Chevron Oil Company v. Huson, 404 U.S.
97 (1971).°
Had we granted an immediate resumption of benefits,
or had we granted back benefits, defendants stood to
incur a substantial liability. In the event that defendants
appealed and both this court and the appellate court
denied a stay, defendants would have had to continue
paying substantial amounts during the pendency of an
appeal. Had the appeal been successful, defendants
might then have found that the interim pay-outs to
‘It is not clear that this case presents a situation where the ordinary
rule of retroactive application of constitutional decisions should not
prevail. Chevron Oil prescribes a strict test for nonretroactive
application:
First, the decision to be applied nonretroactively must establish
a new principle of law, either by overruling clear past precedent
on which litigants may have relief ... or by deciding an issue of
first impression whose resolution was not clearly foreshadowed
.... Second, it has been stressed that ‘‘we must * * * weigh the
merits and demerits in each case by looking to the prior history
of the rule in question, its purpose and effect, and whether
retrospective operation will further or retard its operation.”
Linkletter v. Walker .... Finally, we have weighed the inequity
imposed by retroactive application, for “[wjhere a decision of
this Court could produce substantial inequitable results if
applied retroactively, there is ample basis in our cases for
avoiding the ‘injustice or hardship’ by a _ holding of
nonretroactivity.”’ Cipriano v. City of Houma... .
404 U.S. at 106-107; see also Northern Pipeline Construction Co. v.
Marathon Pipe Line Co., 102 S. Ct. 2858, 2880 (1982).
Further, it is not at all clear that we would have taken the same
view of nonretroactivity as did defendants in the event that we found
Chevron Oil applicable. For example, it may be plausibly argued that,
even if Chevron Oil applied, it would merely proscribe retroactive
relief in the form of back benefits, while permitting immediate
resumption of benefits to terminees who had not received final
decisions from referees.
l6a
Final Opinion and Order.
members of the plaintiff class were, as a practical matter,
unrecoverable.
The proposed consent decree represents a fair,
adequate, and reasonable compromise between the
possible extreme results in this case. The proposed
decree incorporates our earlier grant of declaratory relief.
Consent Decree $4. In addition, it includes a full
prospective injunction effective on the date of the
decree’s final approval. Consent Decree 445-6. The decree
accommodates the defendants’ risk of substantial
retroactive liability by providing for resumption of
benefits and the award of back benefits only to those
whose claims have not yet been finally adjudicated by a
referee and who receive favorable rulings at a “special
supersedeas hearing’’ to be conducted within sixty days
of the entry of the consent decree. Consent Decree 4{7-
14.6 A claimant would remain without benefits if a
referee determined at the time of the special supersedeas
hearing that the self-insured employer or insurer who
had invoked the automatic supersedeas provision against
him would have qualified for a non-automatic
supersedeas on the evidence presented at the special
hearing. Consent Decree 4415-18; see also Pa. Stat. Ann.
tit. 77, $774 (Purdon Supp. 1983) (second sentence); 34
Pa. Admin. Code $$131431-131.33 (Shephard’s 1982).
The proposed consent decree accommodates plaintiffs’
interests in two ways. First, it provides for some
resumption of benefits with back benefits after a result
favorable to the claimant at the special supersedeas
hearing, or, if a hearing is not held or no decision is
* No such hearing is required if all evidence has been presented at a
final hearing on the merits. Consent Decree 419.
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——— ewer. Dt etl Te 2 im Te Te
17a
Final Opinion and Order.
rendered, after sixty-seven days. Consent Decree 414.
Second, the plaintiffs avoid the risks entailed in an
appeal from the court’s liability decision by one or more
of the named defendants. Consent Decree 443, 29.
The proposed consent decree also settles the question
of attorneys’ fees under section 1988 without litigation,
Consent Decree 4426-28, a result much to the benefit of
all parties. Moreover, plaintiffs’ counsel represented at
the fairness hearing that he had consented to a cap on
plaintiffs’ fee award under the consent decree of
$300,000 for eight years’ work. The burden of paying the
award is to be allocated among nine hundred defendants
(pursuant to a formula which would require of most
defendants only a very modest contribution).
We therefore find that the proposed consent decree
represents a fair, adequate, and reasonable settlement of
the remaining remedial issues in this case viewed from
the perspective of the range of reasonably anticipatable
outcomes as of April 3, 1984.
C. Objections
Reactions of both classes are factors to be considered
by the court in deciding whether to approve a consent
decree. The classes have manifested their reactions by
the filing (or not filing) of objections to the proposed
decree. As counsel for plaintiffs noted at the fairness
hearing, a rather small proportion of a'l non-named class
members filed objections to the proposed decree. While
this is not dispositive, we think it deserving of some
weight. That is to say, we are of the view that the non-
opposition of the vast majority of class members
somewhat neutralizes the generally negative tone of
those who did file objections.
18a
Final Opinion and Order.
1. Inclusion of Return to Work Cases
The automatic supersedeas provision covers two sorts
of cases. See Baksalary, 579 F. Supp. at 221. The first
sort consists of cases in which an insurer or self-insured
employer files a termination petition together with the
affidavit of a physician which recites that the claimant
subject to termination has fully recovered. The second
sort consists of cases in which the insurer or self-insured
employer avers that the claimant subject to termination
has returned to work at the same or higher wage.
The declaratory relief and the injunctive relief granted
by the proposed consent decree do not distinguish
between physician’s-affidavit and return-to-work cases.’
Several non-named members of the defendani class have
objected to the inclusion of return-to-work cases. They
represent that the failure to distinguish them from
physician’s-affidavit cases suggests that a claimant who
has returned to work at the same or higher wage has an
entitlement to continue receiving both compensation and
wages until a referee can issue a final decision on a
termination petition.
With the court’s encouragement, counsel for the named
parties and at least one of the objecting defendants,
Philadelphia Electric Company, have agreed to a
statement of the import of the proposed consent decree
"The proposed consent decree does make certain procedural
distinctions between physician’s-affidavit and return-to-work cases in
the entitlement to a special supersedeas hearing. All those terminated
upon a physician’s affidavit who have contested their termination
cases and who have yet to receive a referee’s decision will receive
special supersedeas hearings. One terminated upon an assertion that
he has returned to work will only receive such a hearing if he files a
form with the Bureau of Workers’ Compensation. Consent Decree
4417, 8.
.. 0 .......Q™™S—
19a
Final Opinion and Order.
with respect to this issue. We endorse and adopt this
statement:
The Consent Decree does not entitle any claimant to
receive both compensation payments and salary
during discrete periods of time when that claimant
has actually returned to work at wages equal to or
greater than his/her pre-injury wages. The Consent
Decree does however contemplate the payment of
compensation for those periods during which a
claimant, having previously returned to work at pre-
injury or greater wages, again leaves his/her job as a
result of a work-related injury. In addition, the
Consent Decree contemplates that those claimants
who have returned to work will be entitled to
payment of all compensable medical expenses until
or unless a Referee enters an Order granting a
request for supersedeas of such benefits or a
decision is rendered and received granting a
termination.
Letter from Harold I. Goodman, Esq., to Hon. Arlin M.
Adams, Hon. Clifford Scott Green, and Hon. Louis H.
Pollak (filed in this action June 25, 1984).
To the extent, however, that the objecting defendants
contend that the proposed decree is unfair because it
enjoins invocation of the automatic supersedeas
provision in return-to-work cases, their objections have
no merit. The named parties arrived at their proposed
consent decree on the basis of our prior rulings. Our
principal February 1 Opinion expressly addressed both
aspects of the automatic supersedeas provision.
Baksalary, 579 F. Supp. at 221. Moreover, both of our
February 1 Opinions were grounded on the failure of the
20a
Final Opinion and Order.
automatic supersedeas procedure to provide any notice
to a terminated employee and its fa:lure to provide any
opportunity to contest termination before the
termination takes effect. 579 F. Supp. at 233 and 237.
This failure to provide notice applies in both the return-
to-work and physician’s-affidavit cases. Because this
court’s legal rulings have treated the two aspects of the
automatic supersedeas symmetrically, the proposed
conserit decree quite reasonably also treats the two
aspects symmetrically.
To the extent that the objecting defendants contend
that the proposed consent decree is unfair because it fails
to provide an alternative to the automatic supersedeas
provision in return to work cases, their position is again
without merit. On March 15, we held that we would not,
under any circumstances, require adoption of a particular
alternative procedure to the automatic supersedeas; we
believed that to be the prerogative and responsibility of
the Pennsylvania Legislature.. Memorandum at 6-7
(March 15, 1984). Plaintiffs, therefore, had no reason to
agree to an alternative procedure for return-to-work
cases.
In this regard, we reiterate two of our holdings. First
we do not understand the consent decree as creating any
entitlement to the concurrent receipt of wages and of
compensation benefits other than compensation for
medical expenses. No claimant may properly receive
both. Second, the procedures available for vindicating
employers’ and insurers’ privilege not to pay both wages
and compensation concurrently must be embodied in
provisions of the Workmen’s Compensation Act other
than the automatic supersedeas provision of Section
2la
Final Opinion and Order.
413(a) which we are invalidating. All provisions of that
Act other than the first sentence of the fourth paragraph
of section 413(a), the automatic supersedeas provision,
remain intact. Specifically, neither the rulings of this
couft nor the provisions of the proposed consent decree
affect in any way the operation of sections 306(b) or
413(c) of the Act, Pa. Stat. Ann. tit. 77, §§512, 774.2
(Purdon Supp. 1983). Cf. Memorandum at 4-5 (March 15,
1984). If the other provisions of the Workmen's
Compensation Act, as currently interpreted by the
Pennsylvania courts, do not adequately ensure that a
claimant will not wrongfully receive both compersation
benefits and wages, then the Pennsylvania courts or
legislature, and not this court, should address that
problem. Cf. The Sansom Committee v. Lynn, No. 83-
1121, slip op. at 11 ff. (3d Cir. June 1, 1984) (Becker, J.,
concurring).
2. Time Limit for Special Supersedeas Hearings
Paragraph 14 of the proposed consent decree provides
that all special supersedeas hearings will be conducted
within sixty days of the entry of the Order approving the
proposed consent decree. Further, the referee conducting
these hearings ‘must render his decision within seven
days of the end of this sixty-day period. Cf 34 Pa.
Admin. Code §§131.33(b) (Shephard’s 1982) (regulation
concerning non-automatic supersedeas hearings).
Paragraph 14 further provides that in the event that no
hearing is scheduled within sixty days, or in the event
that the referee does not render his decision on the
special supersedeas within sixty-seven days of the entry
of this court’s Order, then the claimant will receive
automatic resumption of future benefits and automatic
22a
Final Opinion and Order.
back benefits. The claimant does not receive automatic
resumption when the referee finds that the claimant or
his counsel has caused the delay.
Several members of the defendant class have objected
to paragraph 14 on the ground that the additional
burden on the Bureau of Workers’ Compensation will
make it likely that many claimants will not receive
decisions in their special supersedeas proceedings within
sixty-seven days. These defendants contend that because
delay beyond sixty-seven days may arise through no
fault of the insurer or employer, the insurer or employer
should not be obligated automatically to reinstate the
claimant with full back benefits, unless the insurer or
employer had caused the excessive delay.
The accommodation contemplated by the proposed
consent decree seems to us fair, adequate, and
reasonable. If this matter had proceeded to a litigated
judgment, defendants faced the real possibility that this
court would have ordered reinstatement of all claimants
contesting their termination petitions who had been
terminated pending the referee’s decision under the
automatic supersedeas provision. We had previously held
that the automatic supersedeas procedure did not accord
plaintiffs due process. Certainly on the resumption
question defendants had no clear entitlement to rely on
an unconstitutional procedure, albeit invoked before this
court’s decision to that effect. Therefore, defendants
obtained a significantly less-than-worst-case result by
virtue of the proposed consent decree.
Moreover, the Commonwealth has actively participated
in the settlement negotiations leading to the proposed
consent decree. The Commonwealth has abandoned its
{
:
;
;
j
i
23a
Final Opinion and Order.
position that this court ought impose no obligations upon
it and has embraced the sixty-seven day rule as fair
and as administratively feasible. For us to tell the
Commonwealth that it could not fulfill the administrative
commitment it has joined in recommending would smack
of judicial impertinence.
Finally, a consent decree deferring resumption of
benefits pending the outcome of the administrative
hearing should quite properly have provided some
outside time limit for that outcome to be reached.
Without such a time limit, defendants could have had
the benefits of an _ unconstitutional deprivation
indefinitely.
For these reasons, we do not find the sixty-seven day
limit in any way unfair or unreasonable.
3. Attorneys’ Fees
Several members of the defendant class have objected
to the allocation of plaintiffs’ attorneys’ fees recovery
among all named and non-named defendants. The
proposed consent decree would allocate the plaintiffs’
attorneys’ fees in the same proportion as the allocation
of defendants’ contributions to the Workmen’s
Compensation Administration Fund for 1983. Consent
Decree 427.
The objections come in two forms. Some objecting
defendants challenge the liability in any form because
they had no notice of this action. Their complaints of
lack of notice would be appropriate if the defendant class
had been certified pursuant to Federal Rule of Civil
Procedure 23(b)(3). However, the class was certified
pursuant to Rule 23(b)(2). The notice provisions of Rule
24a
Final Opinion and Order.
23(c)(2) do not apply to a Rule 23(b)(2) class. Accordingly,
defendants had no option to participate or not
participate and they had no entitlement to notice. Walsh
v. Great Atlantic & Pacific Tea Co., Inc., 726 F.2d 956,
962-963 (3d Cir. 1983).
Some objecting defendants take issue with the
allocation formula. They contend that the formula is
completely arbitrary and, in particular, bears no relation
to the use that any defendant has made of the automatic
supersedeas procedure. We agree that the proposed
consent decree will not allocate plaintiffs’ attorneys’ fees
in proportion to the number of automatic supersedeas
petitions filed by each defendant. Plaintiffs’ counsel has
represented that the allocation formula essentially
assesses each defendant in proportion to its total
participation in the workers’ compensation program.
We do not believe that this allocation scheme makes
the proposed consent decree unfair, inadequate, or
unreasonable. In the first place, the $300,000 cap placed
upon plaintiffs’ attorneys’ fees recovery makes the
difference between this allocation scheme and any other
reasonable allocation scheme rather small for any one of
the nine hundred members of the defendant class.*
Further, one would be hard put to establish a method for
allocating plaintiffs’ attorneys’ fees which would appear
significantly less arbitrary. The method suggested by
defendants—allocation upon the basis of past use of the
automatic supersedeas provision—would surely prove
expensive, and might prove impossible, to effectuate.
* The objectors did not know of this cap at the time they filed their
objections, as the cap only became known at the time of the fairness
hearing.
nel
25a
Finai Opinion and Order.
This is because the Bureau of Workers’ Compensation
has no computerized records of the invocations of the
automatic supersedeas provision which identify the
insurer or employer filing the automatic supersedeas
petition.
Accordingly, we find the proposed allocation scheme a
fair, adequate, and reasonable accommodation of the
practicalities of assessing plaintiffs’ section 1988
recovery.
5. Scope of Relief to Plaintiffs
Several plaintiffs have objected to their exclusion from
relief under the proposed consent decree. These
objections come in two forms. First, some objectors seek
relief from a supersedeas even though they have not
been subject to an invocation of the automatic
supersedeas provision of section 413(a). Second, some
objectors seek relief even though they have obtained a
final referee’s decision.
A consent decree which does not address the claims of
those not subject to an automatic supersedeas in this
case cannot, for that reason, be unfair, inadequate, or
unreasonable. From its inception until now, this case has
dealt only with Section 413(a). The remedial portion of
this litigation has involved the named parties in an
attempt to litigate, and then to compromise, the remedial
implications of our February 1 and March 15 Opinions. A
consent decree arising in this context which does not
address what has not been litigated does not fail on that
account. If it be the case that what we have decided has
implications for situations other than the invocation of
the automatic supersedeas, exploration of those
implications must await another lawsuit.
26a
Final Opinion and Order.
The proposed consent decree also does not appear to us
unfair, inadequate, or unreasonable because it does not
provide relief to those who have had a referee's decision
on the merits in their termination petition dispute.
Consent Decree 47. We have made clear that this case
concerns only ‘“‘the right to compensation between the
time an employer or insurer petitions for termination or
modification and the time the referee makes a final
determination.’’ Baksalary, 579 F. Supp. at 221. After
that time, the automatic supersedeas has no independent
force; the referee’s decision on the merits of the
termination petition controls. Moreover, after an
individual has received a referee's decision on the merits,
none of our reasoning concerning notice and an
opportunity to be heard applies; the individual has
received his hearing. Cf. Cohen v. City of Philadelphia,
No. 83-1575 (3d Cir. June 6, 1984); Vinson v. Freeman,
Civil Action No. 81-0643 (E.D. Pa. June 29, 1984).
For the foregoing reasons, we find that the proposed
consent decree, as amended by our Order of May 14,
1984, is fair, adequate, and reasonable. Therefore, the
accompanying Order approves the decree pursuant to
Federal Rule of Civil Procedure 23(e).
III. LITIGATED ISSUE
As discussed above, the named parties, proposed
consent decree does not resolve the question of what
remedy, if any, should be awarded claimants against
whom a member of the defendant class may have
invoked the automatic supersedeas provision between
February 1, 1984, the date of this court’s liability
Opinions, and March 15, 1984, the date of this court’s
declaratory Order. Plaintiffs have moved for mandatory
27a
Final Opinion and Order.
relief requiring immediate resumption of post-February 1
pre-March 15 terminees’ benefits together with an
immediate award of back benefits to the date of the
automatic supersedeas. Several members of the
defendant class other than named defendants oppose
such an award.
Much of the parties’ discussion of this issue turns on
whether the defendants who invoked the automatic
supersedeas provision after February 1, 1984, had any
justification for doing so. We find this analysis
unhelpful. We see no reason to characterize any
defendant’s activity as ‘‘wrongful’” or not ‘‘wrongful.”
Instead, we believe that we may usefully commence our
discussion of the relief appropriate to post-February 1
pre-March 15 terminees with consideration of the
retroactive impact of our March 15 declaration of the
automatic supersedeas provision’s unconstitutionality.
Our March 15 Memorandum explicitly reserved the
question of our declaration’s retroactivity. Ordinarily,
judicial decisions operate retroactively in our system of
precedent. Solem v. Stumes, 104 S. Ct. 1338, 1341 (1984).
Nevertheless, a court may limit its holdings’ effect and
deny retroactive relief when the court’s decision meets
the three criteria enunciated in Chevron Oil Co. v.
Huson, 404 U.S. 97 (1971). Specifically, a court will take
the unusual step of denying retroactive relief when its
decision was so novel as to be unpredictable, when
retroactive application of the court’s decision will retard
the holding’s purpose, and when retroactive application
of the decision will produce substantial inequity. Chevron
Oil, 404 U.S. at 106-907; see also Northern Pipeline
Construction Co. v. Marathon Pipe Line Co., 102 S. Ct.
| sence eatin
28a
Final Opinion and Order.
2858, 2880 (1982); cf. Solem v. Stumes, 104 S. Ct. at 1341
(different but analogous formulation in criminal context).
On February 1, 1984, we announced our constitutional
conclusion that the automatic supersedeas provision of
the Pennsylvania Workmen’s Compensation Act did not
accord procedural protections required by the due
process clause. On March 15 we formally declared that
provision unconstitutional. As applied to invocations of
the automatic supersedeas provision between February 1
and March 15, our March 15 declaration quite clearly
does not meet the stringent requirements of Chevron Oil.
It was not a new holding; its retroactive application will
not retard its purpose, and its retroactive application will
not produce substantial inequity.’
We therefore find that the Chevron Oil factors do not
militate in favor of the nonretroactive application of our
March 15 declaration of the automatic supersedeas
provision’s invalidity. We find that, as of February 1,
1984, any invocation of the automatic supersedeas
violated the constitutional rights of the worker’s
compensation claimant involved. We find that immediate
resumption of benefits and an award of back benefits
with interest provide the appropriate relief for this
constitutional deprivation.
Any award must clearly include immediate resumption
of benefits. No defendant should be entitled to continue
*On March 15 we not only reserved the question of our declaration’s
retroactivity to February 1, but we also reserved the question of our
declaration’s retroactivity to invocations of the automatic
supersedeas provision before February 1, 1984. The latter, in our
view, presented a much more difficult problem. However, the consent
decree has obr‘ated the need for a decision on the more difficult
portion of the retroactivity issue.
iii iia
Me atti cen
29a
Final Opinion and Order.
withholding compensation on the basis of a
constitutionally invalid supersedeas. Further, we believe
that restitution of the compensation that should have
been paid duiing the time of the automatic supersedeas
also follows from the _ supersedeas’ invalidity.
Resumption of benefits and an award of back benefits
with interest serve to put the parties in the position they
would hive been in but for the invalid invocation of tlie
automatic supersedeas.
The accompanying Order, then, grants plaintiffs’
petition for relief on the litigated issue and awards
immediate resumption of benefits and back benefits to
claimants subject to the automatic supersedeas after
February 1, 1984.
30a
Final Opinion and Order.
IN THE UNITED STATES DISTRICT COURT
For the Eastern District of Pennsylvania
Civil Action No. 76-429.
RICHARD BAKSALARY, WILLIAM JONES,
MORRIS TUCKER, and CHARLES SAMUEL
Individually and on behalf of all others similarly
situated,
Plaintiffs,
Vv.
PAUL J. SMITH, C. JOHN URLING, JR.,
WILLIAM J. SHEPPARD, GRACE M. SLOAN,
THE STATE WORKMEN’S INSURANCE FUND,
PENNSYLVANIA MANUFACTURERS’
ASSOCIATION INSURANCE COMPANY,
AMERICAN MUTUAL LIABILITY INSURANCE
COMPANY, THE SCHOOL DISTRICT OF
PHILADELPHIA, BITUMINOUS CASUALTY
CORPORATION, and all other insurance carriers
and/or self-insured employers similarly situated,
Defendants.
Filed July 30, 1984; MICHAEL E. KUNZ, Clerk.
By (Illegible) Dep. Clerk.
Before: ADAMS, Circuit Judge,*
GREEN and POLLAK, District Judges.
* Honorable Arlin M. Adams, United States Circuit Judge, United
States Court of Appeals for the Third Circuit, sitting by designation.
3la
Final Opinion and Order.
ORDER
For the reasons stated in the accompanying Opinion:
1. The consent decree filed in this action on April 27,
1984, as amended by Order of May 14, 1984, is hereby
APPROVED pursuant to Federal Rule of Civil Procedure
23(e).
2. Any invocation on or after February 2, 1984, of the
automatic supersedeas provision of section 413(a) of the
Pennsylvania Workmen’s Compensation Act, Pa. Stat.
Ann. tit. 77, §774 (Purdon Supp. 1983)(first sentence), is
hereby DECLARED to have deprived the compensation
claimant involved of his or her property without due
process of law.
3. Each named and class defendant insurance carrier
and self-insured employer is hereby directed, within
thirty (30) days of the date of this Order, to reinstate
and resume the payment of all worker’s compensation
benefits to each member of the plaintiff class who: (a)
has had his or her benefits terminated under the
automatic supersedeas provision of section 413 on or
after February 2, 1984, and (b) has not yet received a
decision from a referee on the merits of the underlying
termination petition.
4. The payments to be made under paragraph 3 shall
include:
(a) all previously withheld compensation retroactive to
the date of termination, provided, however, that no
payments are required for any period(s) during which
claimants are shown to have actually returned to work at
wages equal to or greater than the wages they earned at
the time of their compensable injury;
a el
32a
Final Opinion and Order.
(b) statutory interest of 10% on all unpaid
compensation as provided by section 406.1 of the
Workmen’s Compensation Act, Pa. Stat. Ann. tit. 77,
$717.1 (Purdon Supp. 1983);
(c) resuned compensation payments, to be paid
pending a decision by a referee on the rnerits of the
termination petition, based on the weekly rate in effect
at the time of termination; and
(d) the payment of all previously incurred medical
expenses and medical expenses incurred prior to a
decision by a referee on the merits of the termination
petition, such payments to be made regardless of
whether the claimant has returned to work.
ARLIN M. ADAMS
ADAMS, Circuit Judge
CLIFFORD SCOTT GREEN
GREEN, District Judge
LOU'S H. POLLAK, AMA
POLLAK, District Judge
JULY -30, 1984
7/31/84 copies to:
See attached
fad
33a
Order (Amendment)
IN THE UNITED STATES DISTRICT COURT
For the Eastern District of Pennsylvania
Civil Action No. 76-429.
RICHARD BAKSALARY, WILLIAM JONES,
MORRIS TUCKER, and CHARLES SAMUEL
Individually and on behalf of all others similarly
situated,
Plaintiffs,
Vv.
PAUL J. SMITH, C. JOHN URLING, JR.,
WILLIAM J. SHEPPARD, GRACE M. SLOAN,
THE STATE WORKMEN’S INSURANCE FUND,
PENNSYLVANIA MANUFACTURERS’
ASSOCIATION INSURANCE COMPANY,
AMERICAN MUTUAL LIABILITY INSURANCE
COMPANY, THE SCHOOL DISTRICT OF
PHILADELPHIA, BITUMINOUS CASUALTY
CORPORATION, and all other insurance carriers
and/or self-insured employers similarly situated,
Defendants.
% Filed August 13, 1984; MICHAEL E. KUNZ, Clerk.
s By (illegible) Dep. Clerk.
Before: ADAMS, Circuit Judge, *
GREEN and POLLAK, District Judges.
* Honorable Arlin M. Adams, United States Circuit Judge, United
States Court of Appeals for the Third Circuit, sitting by designation.
:
[a
34a
\ Order (Amendment). |
ORDER
On July 30, 1984, we issued an unsigned Opinion and
an accompanying Order approving and adopting the
named parties’ pryposed consent decree. That Opinion
and Order also resolved the issues which the named
parties had been unable amicably to resolve among
themselves. x
Counsel have brought to our attention that we
mischaracterized paragraph 14 of the consent decree on
page 23 of our Opinion. The third sentence of the first
full paragraph on page 23 reads:
Paragraph 14 further provides that in the event that
no hearing is scheduled within sixty days, or in the
event that the referee does not render his decision
on the special supersedeas within sixty-seven days
of the entry of this court’s Order, then the claimant
will receive automatic resumption of future benefits
and automatic back benefits.
In fact, paragraph 14 provides, in pertinent part, that
lilf no decision has been rendered by the referee
assigned the Special Supersedeas Hearing by the
seventh day following the expiration of the
prescribed sixty (60) day period, then the payment
of compensation benefits shall be resumed only
prospectively commencing the day following the
expiration of the foregoing sixty-seven (67) day
period. ...
Consent Decree 414 (emphasis added).
ieee
35a
Order (Amendment).
For the foregoing reason, the third sentence of the first
full paragraph on page 23 of our July 30 Opinion»is
AMENDED by sstriking the last four words of that
sentence. The amended sentence SHALL now read:
Paragraph 14 further provides that in the event that
no hearing is scheduled within sixty days, or in the
event that the referee does not render his decision
on the special supersedeas within sixty-seven days
of the entry of this court’s Order, then the claimant
will receive automatic resumption of future benefits.
ARLIN M. ADAMS
ADAMS, Circuit Judge
CLIFFORD SCOTT GREEN
GREEN, District Judge
LOUIS H. POLLAK
POLLAK, District Judge
AUGUST 8, 1984
8/13/84 copies to:
See attached
36a¥
Opinion on Merits and Order for Submissions
IN THE UNITED STATES DISTRICT COURT
For the Eastern District of Pennsylvania
Civil Action No. 76-429.
RICHARD BAKSALARY, WILLIAM JONES,
MORRIS TUCKER, and CHARLES SAMUEL
Individually and on behalf of all others similarly
situated,
. Plaintiffs,
PAUL J. SMITH, C. JOHN URLING, JR.,
WILLIAM J. SHEPPARD, GRACE M. SLOAN,
THE STATE WORKMEN’S INSURANCE FUND,
PENNSYLVANIA MANUFACTURERS’
ASSOCIATION INSURANCE COMPANY,
AMERICAN MUTUAL LIABILITY INSURANCE
COMPANY, THE SCHOOL DISTRICT OF
PHILADELPHIA, BITUMINOUS CASUALTY
CORPORATION, and all other insurance carriers
and/or self-insured employers similarly situated,
Defendants.
Filed February 1, 1984; MICHAEL E. KUNZ, Clerk.
By (Illegible) Dep. Clerk. ¢
Before: ADAMS, Circuit Judge,*
GREEN and POLLAK, District Judges.
* Honorable Arlin M. Adams, United States Circuit Judge, United
States Court of Appeals for the Third Circuit, sitting by designation.
Pet Ae -
——— as
37a
Opinion on Merits and Order for Submissions.
HAROLD I. GOODMAN (argued)
MARK B. SEGAL
Community Legal Services, Inc.
Sylvania House
Juniper and Locust Streets
Philadelphia, PA 19107
DAVID RUDOVSKY
1427 Walnut Street
Philadelphia, PA 19102
RITA L. BERNSTEIN
Community Legal Services, Inc.
1226 South Broad Street
Philadelphia, PA 19146
Attorneys for Plaintiffs
ROBERT H. NOTTALL (argued)
ROBERT T. LEAR
Law Department
School District of Philadelphie
Parkway at 21st Street
Philadelphia, PA
Attorneys for Defendant School
District of Philadelphia
HENRY H. JANSSEN (argued)
Rawle & Henderson
211 South Broad Street
Philadelphia, PA 19107
Attorney for Defendant Bituminous
Casualty Corporation
38a
Opinion on Merits and Order for Submissions.
CHRISTO! HER J. PAKURIS (argued)
925 Chestnut Street
Philadelphia, PA 19107
Attorney for Defendant
Pennsylvania Manufacturers’
Association Insurance Company
JOSEPH R. THOMPSON (argued)
656 Public Ledger Building
Philadelphia, PA 19106
Attorney for Intervenor Liberty
Mutual Insurance Co.
_-- oe Ur, ee
LEROY S. ZIMMERMAN 7
DEBRA K. WALLET (argued)
ALLEN C. WARSHAW
Office of the Attorney General
15th Floor, Strawberry Square
Harrisburg, PA 17102
Attorneys for ‘“‘Commonwealth”’
Defendants Paul J. Smith, C. John
Urling, Jr., William J. Shepard,
and Grace M. Sloan
WILLIAM C. STEPPACHER (argued) —
State Workmen’s Insurance Fund
100 Lackawanna Avenue
Scranton, PA 18503
Attorney for Defendant State
Workmen’s Insurance Fund
i ial
39a
Opinion on Merits and Order for Submissions.
ROBERT G. HANNA, JR.
Marshall, Dennehey & Warner, P.A.
1515 Locust Street
Philadelphia, PA 19102
Attorney for Defendant American
Mutual Liability Insurance
Company
OPINION
POLLAK, District Judge February 1, 1984
I.
Plaintiffs initiated this action in 1976, challenging the
constitutionality of certain provisions of the
Pennsylvania Workmen’s Compensation Act, Pa. Stat.
Ann. tit. 77, $§1-1031 (Purdon 1952 and Supp. 1982). In
particular, plaintiffs allege that the ‘‘automatic
supersedeas”’ provision of section 413 of the Act, Pa.
Stat. Ann. tit. 77, §774 (Purdon Supp. 1982), permits
employers and insurers to terminate worker’s
compensation benefits without according due process of
law to those whose benefits are terminated, in violation
of the Fourteenth Amendment. The automatic
supersedeas terminates benefits without notice to the
person receiving benefits. It requires only an employer’s
or insurer’s petition reciting that the benefit recipient
has returned to work at the same or higher pay or a
petition accompanied by a physician’s affidavit averring
that the recipient has recovered. Plaintiffs make their
due process claim in an action under the Civil Rights Act
of 1871, 42 U.S.C. $1983 (Supp. V 1981).
40a
Opinion on Merits and Order for Submissions.
A decade ago a three-judge panel of this court heard a
challenge to section 413’s predecessor. In Silas v. Smith,
361 F. Supp. 1187 (E.D. Pa. 1973), the court cunsidered
the case of an individual whose worker’s compensation
benefits were terminated by his employer’s insurer under
the automatic supersedeas provision then in effect. The
court found no state action in this termination. The court
further stated that even had it found state action, it
would not have found a violation of the due process
clause. The Silas court, however, faced these questions at
a time when employers and employees could opt out of
the Pennsylvania Workmen’s Compensation Act.
Further, the Silas court was not called on to consider the
problem of the automatic supersedeas’ application to
public employees or to employees of employers insured
by the State Workmen's Insurance Fund, an insurer
administered by state offi@ials. Therefore, as we explain
more fully below, the ruling in Silas is not controlling
with respect to the claims advanced in the lawsuit now
before the court. Because the prior decision in Silas is
not controlling here, it was proper that, after this action
was commenced, Judge Fogel ordered that ‘a three-
judge court be convened ... in that, pursuant to 28
U.S.C. §§2281 and 2284, the complaint raises substantial
constitutional issues and requests as relief the enjoining
of the enforcement, operation and execution of a state
statute.’
‘Congress has repealed section 2281, Pub.L. No. 94-381, §$1, 2, 90
Stat. 1119 (1976), but section 2281 still applies to cases filed before
the repeal.
. .
<i Ne DALLAS ALE Rate 2 2A. TR ALD AD NE NO
wee ect
IS a td ENE AE REE, DIO
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Opinion on Merits and Order for Submissions.
On March 27, 1978, an order was entered permitting
this case to proceed as a plaintiffs’ and defendants’ class
action under Fed. R. Civ. P. 23(b)(2). The Plaintiff class
includes ‘‘all persons who have been or will be receiving
benefits pursuant to the Pennsylvania Workmen’s
Compensation Act and who have had or will have such
benefits terminated, suspended, reduced or otherwise
deprived without advance notice and opportunity for a
prior evidentiary hearing.’’ The defendant class includes
‘“‘all insurance companies, mutual associations and
employment establishments authorized to insure the
payment of Pennsylvania Workmen’s Compensation
benefits who have acted, or will act, to terminate,
suspend, reduce, or otherwise deprive benefits to
previously eligible claimants without advance notice and
opportunity for a prior evidentiary hearing... .”’
Discovery proceeded for five years. Then, after a series
of conferences, the court ordered the parties to submit a
set of stipulations during the summer of 1982. Plaintiffs
presented their evidence by way of stipulations and
affidavits in November. Defendants then moved for
involuntary dismissal pursuant to Fed. R. Civ. P. 41(b).
This court heard oral argument on April 7, 1983. At that
time, we deferred decision on the 4i(b) motion until
defendants’ evidence had been submitted. Defendants
then put in their evidence by stipulations and affidavits.
Because plaintiffs offered no rebuttal evidence, the entire
case was before us for decision on the merits. This
opinion constitutes our fifidings of fact and conclusions
of law. *
42a
Opinion on Merits and Order for Submissions.
Il.
This case involves a challenge to one of the methods
by which an employer or insurer obligated to pay
benefits under the Pennsylvania Workmen's
Compensation Act can cease paying those benefits.
Through a set of procedures not pertinent to this action,
an individual covered by the Act and injured in the
course of his employment can obtain the right to receive
weekly benefits payments from his employer. The
employer must insure against this obligation. Pa. Stat.
Ann. tit. 77, §501 (Purdon Supp. 1982); Stipulations of
Fact 416. This requirement may be satisfied in one of
three ways: (1) the employer may retain a private
insurance carrier licensed to provide worker's
compensation insurance; (2) the employer may insure
through the State Workmen’s Insurance Fund, an
insurance fund administered by the state; (3) the
employer may self-insure. Jd. When an _ employer
purchases insurance, the insurer assumes all of the
employer's liabilities under the Act and, in effect, stands
in the employer’s shoes with respect to the employees
receiving worker’s compensation. See Pa. Stat. Ann. tit.
77, §§501, 701 (Purdon Supp. 1982); Cease v. Thomas,
155 Pa. Super. 215, 38 A.2d 547 (1944). Thus, in the
ordinary case of an insured employer, the employer has
little to do with a compensation matter once the insurer
has begun to pay compensation benefits.
When a self-insured employer or an insurer believes
that an injured employee who receives compensation
benefits has resumed work or recovered his or her health,
the employer or insurer will typically seek to terminate
the employee’s worker’s compensation benefits. If the
employee does not agree to a termination of his benefits,
43a
Opinion on Merits and Order for Submissions.
the employer or insurer files a petition to terminate or
modify the compensation with the agency which
administers the worker’s compensation program, the
Bureau of Worker’s Compensation. Pa. Stat. Ann. tit. 77,
§772 (Purdon Supp. 1982). A referee from the Bureau
then holds hearings to determine whether grounds for
termination or modification exist.
Section 413 of the Act, the subject of this lawsuit,
deals with the right to compensation between the time
an employer or insurer petitions for termination or
modification and the time the referee makes a final
determination. Section 413, in pertinent part, provides:
The filing of a petition to terminate or modify a
notice of compensation payable or a compensation
agreement or award as provided in this section shall
operate as a supersedeas, and shall suspend the
payment of compensation fixed in the agreement or
by the award, in whole or to such extent as the facts
alleged in the petition would, if proved, require only
when such petition alleges that the employe has
turned to work at his prior or increased earnings
where the petition alleges that the employe has
fully recovered and is accompanied by an affidavit
of a physician on a form prescribed by the [Bureau
of Worker’s Compensation] to that effect which is
based upon an examination made within fifteen days
of the filing of the petition. In any other case, a
petition to terminate or modify a compensation
agreement or other payment arrangement or award
as provided in this section shall not automatically
operate as a supersedeas but may be designated as a
request for a supersedeas, which may then be
44a
Opinion on Merits and Order for Submissions.
granted at the discretion of the referee hearing the
case.
2a. Stat. Ann. tit. 77, $774 (Purdon Supp. 1982).
Thus, in two sorts of cases an employee receiving
benefits can have his benefits terminated pending
disposition of his employer’s or his employer's insurer’s
petition to terminate or modify those benefits. The first
sort of case is one where the petition alleges that the
employee has returned to work at the same or higher
wages. The second sort of case is one where the petition
alleges that the employee has fully recovered from his
disability and the petition is accompanied by a doctor's
affidavit averring recovery based upon an examination of
the employee within the previous fifteen days.
In either of the two automatic supersedeas situations,
the filing of the petition suspends the employer’s or
insurer’s obligation forthwith. Before the employer or
insurer can successfully file the petition, however, clerical
personnel of the Bureau promptly review the petition
to determine whether [it has] been properly
completed and [complies] in form with the
requirements of the [Act] and the Bureau’s own
rules and regulations. If any deficiency as to form is
found, the bureau rejects the petition and returns it,
with notice of the nature of any defect, for
correction by the party.
Stipulations of Fact 451. This review is addressed to
formal issues and involves no consideration of the merits
of the petition. Stipulations of Fact 452.
The filmg employer or insurer need not serve the
employee with a copy of the petition either before or
ee ss
45a
Opinion on Merits and Order for Submissions.
after filing. Instead, the Bureau sends the employee
notice of the petition, after filing, at the time (usually no
more than five days after receipt of the petition) that the
Bureau assigns the matter to a referee. Stipulations of
Fact 9953, 54.
The employee has no avenue to contest application of
the automatic supersedeas other than his defense on the
merits of the petition before the referee. Referees
typically take one year or more to decide contested cases.
Stipulations of Fact 463. Even if he ultimately has his
benefits restored retroactively, an employee subject to an
automatic supersedeas will find himself without worker’s
compensation benefits from the time that the Bureau of
Worker’s Compensation performs its clerical review of
his employer’s or insurer’s petition until the time a
referee decides the case. Plaintiffs contend that this
constitutes a deprivation of that employee’s property
interest in his compensation benefits without according
the employee due process of law.
We have permitted this action to proceed as both a
plaintiffs’ and defendants’ class action. The plaintiff
class includes those as to whom the automatic
supersedeas provision has been or may be invoked. The
defendant class includes all those who have invoked or
may invoke the automatic supersedeas. Delimitation of
these classes requires explanation of the Workmen’s
Compensation Act’s coverage.
The Act covers all ‘“‘employees’’ of “employers.’’ An
“employee’”’ is defined as any non-casual worker who
performs service for another under the other’s control.
Pa. Stat. Ann. tit. 77, $22 (Purdon Supp. 1982). The Act
excludes elected officers of the state or any of its
46a
Opinion on Merits and Order for Submissions.
political subdivisions, id. and domestic workers, Pa.
Stat. Ann. tit. 77, §676 (Purdon Supp. 1982).
“Employers” include “natural persons, partnerships,
joint-stock companies, corporations for _ profit,
corporations not for profit, municipal corporations, the
Commonwealth, and all governmental agencies created
by it.”” Pa. Stat. Ann. tit. 77, §21 (Purdon 1952). The Act
does not cover federal workers.
To the extent it applies, the [Act] covers all injuries
or occupational diseases occurring in Pennsylvania,
regardless of the place of hire. The Act also applies
to injuries incurred outside of the Commonwealth
where the employee is: (1) principally employed in
Pennsylvania; (2) hired in Pennsylvania with
employment not principally localized in any state; (3)
hired in Pennsylvania with employment principally
localized in another state which does not cover that
injury in its own workers’ compensation law; or (4)
hired in Pennsylvania for employment outside the
United States or Canada.
Stipulations of Fact 45.
Before 1974, employees and employers had the option
of declining coverage under the Act. Employers and
employees were presumed to accept application of the
Act. They could, however, file a notice with the Bureau
and avoid the Act’s application to their employment
relationship. Pa. Stat. Ann. tit. 77, §§461, 462 (Purdon
1952) (repealed). The Pennsylvania Legislature has since
made the statute mandatory. Act No. 263, §5, 1974 Pa.
Laws 782, 784, codified at Pa. Stat. Ann. tit. 77, $461
(Purdon Supp. 1982). Thus, all possible class members
are in fact class members in this action.
47a
Opinion on Merits and Order for Submissions.
This case now has four remaining individual plaintiffs
who represent the class. Richard Baksalary’ injured his
left achilles tendon while working for the Midvale-
Heppenstall Company. Midvale-Heppenstall had insured
with the Pennsylvania Manufacturers’ Association
: Insurance Company (‘‘PMAIC’’) which paid
compensation benefits to Mr. Bak:alary from December
27, 1973, until June 12, 1974. On ie basis of a June 11
examination by one Dr. Cassidy, . MAIC filed a first
petition for termination of Mr. Baksz.:ary’s compensation
benefits on July 19, 1974, invoking the automatic
supersedeas. On August 2, however, PMAIC again
began to pay Mr. Baksalary’s benefits. Then, on October
25, PMAIC again reversed its field, and stopped paying
' Mr. Baksalary. On November 22, PMAIC filed a second
petition for termination alleging that Mr. Baksalary had
recovered as of June 11. PMAIC attached an affidavit of
Dr. Cassidy and again invoked the automatic
supersedeas. Mr. Baksalary first received notice of the
November 22 filing on December 4. Three years later, on
| December 1, 1977, a referee determined that PMAIC had
been on sound ground in discontinuing the payment of
benefits to Mr. Baksalary but that it still remained liable
for any treatment costs related to Mr. Baksalary’s
injury, subject to a credit for benefit payments made
after June 11, 1974.
Plaintiff William Jones* suffered an injury while
employed as a truck driver for the Tri-County Hauling
Company. American Mutual Liability Insurance
Company insured Tri-County against worker's
* We base this account upon the parties’ Stipulations Concerning
Plaintiff Richard Baksalary and Defendant Pennsylvania
Manufacturers’ Association Insurance Company. Xe
*We base this account on the Stipulations Concerning Plaintiff
William Jones and defendant American Mutual Liability Insurance
Company.
aatetaneeeenenieeeemeee
48a
Opinion on Merits and Order for Submissions.
compensation liability. Mr. Jones and American Mutual
entered an agreement for payment of compensation
benefits beginning on December 5, 1973. American
Mutual stopped paying benefits on May 5, 1974, and
filed a petition to terminate Mr. Jones’ benefits on June
11. Based upon a physician’s affidavit that an
examination of May 29 showed Mr. Jones’ recovery,
American Mutual invoked the automatic supersedeas at
the time of its June 11 petition. The Bureau of Worker's
Compensation mailed notice of Mr. Jones’ termination on
June 16. Three years later, on August 11, 1977, a referee
found that Mr. Jones had not recovered in May of 1974,
and ordered American Mutual to pay retroactive benefits
to Mr. Jones with interest at ten percent per annum.
Morris Tucker‘ injured his back while packing meat for
S. Lotman & Sons, Inc. Bituminous Casualty
Corporation insured Lotman. Bituminous and Mr. Tucker
agreed that Bituminous owed Mr. Tucker compensation
payments beginning November 9, 1973. On July 17,
1974, Bituminous filed a petition, to terminate Mr.
Tucker’s benefits and invoked the automatic
supersedeas. Bituminous had not attached a physician s
affidavit, but had typewritten on the petition that ‘J.
David Hoffman, M.D. certifies that Morris T. Tucker
was able to return to work on July 3, 1974.’’ This
apparently sufficed, because Bituminous paid nothing to
Mr. Tucker until a referee issued a decision on August
21, 1975, in favor of Mr. Tucker. Bituminous appealed
that decision, but the parties settled on December 19,
‘We take this account from the Stipulations Concerning Plaintiff
Morris Tucker and Defendant Bituminous Casualty Corporation.
49a
Opinion on Merits and Order for Submissions.
1977. During the period of his termination, Mr. Tucker
received income from welfare, Social Security Disability
Insurance, and his wife’s employment.
Charles Samuel had two experiences with the
automatic supersedeas provision of section 413.5 Mr.
Samuel worked for the Pennsylvania Liquor Control
Board when he hurt his back. The State Workmen's
Insurance Fund (‘““SWIF’’) insured the Liquor Control
Board. As described more fully in section III(B)(2)(b) of
our opinion, “S.W.I.F. is a legislatively created and
state-operated insurance cartier from which workers’
compensation insurance policies may be purchased by
employers to cover all risks of liability under the Act,
including employers who have been rejected or cancelled
by private insurance carriers.”’ Stipulations of Fact 422.
SWIF Legan paying compensation to Mr. Samuel as of
February 28, 1975. SWIF first terminated these
payments on October 7, 1975, on the basis of an
examination of Mr. Samuel by Dr. Williams. SWIF
petitioned to terminate Mr. Samuel’s compensation on
October 17 and invoked the automatic supersedeas. The
first notice that Mr. Samuel received of the petition was
a copy mailed to him by the Bureau on November 7. A
referee denied SWIF’s petition and awarded retroactive
compensation benefits with interest aimost eleven
months later, on September 20, 1976.
On June 27, 1977, SWIF again filed a petition to
terminate Mr. Samuel’s benefits. SWIF attached the
affidavit of Dr. Stiffel, who had conducted an
examination on June 21, and SWIF invoked the
automatic supersedeas. A copy of this petition was
*See Stipulations Concerning Plaintiff Charles Samuel and
Defendant S.W.I.F.
50a
Opinion on Merits and Order for Submissions.
mailed to Mr. Samuel on July 1. A referee denied
SWIF’s petition on January 5, 1978, and SWIF
appealed. SWIF did not resume payments until the
administrative appeal board remanded the case to the
referee on April 10, 1978. The referee clarified his
January 5, 1978, order on March AQ, 1979, to award Mr.
Samuel retroactive -unefits and ten percent per annum
interest.
IIf.
A claim under section 1983 alleging a violation of the
due process clause of the Fourteenth Amendment
requires proof of three elements. First, a section 1983
claimant must show a deprivation of a constitutionally
protected liberty or property interest. Second, the
claimant must show that the deprivation was
accomplished ‘‘under color of state law’ and as a result
of “‘state action;’”’ these turn out to mean the same thing.
Third, the claimant must show that the method by which
the deprivation was effectuated involved a denial of due
process—in this case, procedural due process. We
proceed to consider each of these elements in turn.
A. Deprivation
As we discussed in the previous portion of this
opinion, section 413 permits an employer or insurer
summarily to suspend worker’s compensation payments
to an injured employee formerly entitled to those
benefits. The employee may protest this suspension and
he may obtain a hearing before a referee. The referee
may, of course, determine that the employee was no
se eS ee
OL ET ANNIE OD Ea
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Opinion on Merits and Order for Submissions.
longer entitled to benefits at the time of the petition.®
° The parties devoted considerable effort to establishing the rate at
which referees find for employees when the employee contests a
termination petition involving an automatic supersedeas. It is to be
noted that the employee cannot effectively challenge the supersedeas
itself. Rather, the employee contests the underlying petition to
terminate; the supersedeas operates in the interim.
Plaintiffs commissioned two statistical studies, one in 1978 and one
in 1981. Stipulations of Fact 4102. Plaintiffs now rely only on the
1981 report by Professor Bernard Siskin of the Temple University
Statistics Department. See Stipulated Exhibit 58 (Supplemental
Statistical Study of the Automatic Supersedeas Process Under the
Pennsylvania Worker's Compensation Act). Based on a sample of 211
files, Professor Siskin calculates the ‘‘reversal’’ rate—the rate of
referee awards more favorable to employees than complete
termination—at 41.7% of all contested automatic supersedeas cases.
Professor Siskin’s calculations also suggest a much higher “reversal”
rate when the employee has legal representation: Professor Siskin
estimates a ‘reversal’ rate of 77.9% where the employee is
represented, but of only 24.6% where the employee has no lawyer.
Defendants dispute Professor Siskin’s study. See Stipulations of
Fact 4117-121. Defendants employed Mr. Lester V. Jackson, a
former director of claims operations for PMAIC, to critique Professor
Siskin’s analysis. See Stipulations of Fact 44110-116; Defendant's
Exhibit D-5 (Survey and Study Report Submitted by L. V. Jackson).
Mr. Jackson concludes that Professor Siskin’s data only support a
finding that referees decide unfavorably to employers or insurers in
9% of contested automatic supersedeas cases. Exhibit D-5, p. 8.
Professor Siskin’s statistical tests allow him to be 99% confident that
the actual “‘reversal’’ rate substantially exceeds 9%. Stipulated
Exhibit 58, p. 5. Mr. Jackson’s disagreement with Professor Siskin
comes not from an assertedly superior statistical analysis. Rather,
Mr. Jackson and Professor Siskin disagree on the proper
classification of cases and outcomes; Professor Siskin counts some
results as employee ‘‘wins’’ which Mr. Jackson counts as favorable to
the insurer. See Stipulations of Fact 44117-120.
We do not need to resolve the technical issues involved in the
parties’ statistical dispute. The undisputed data show that (1) in
contested automatic supersedeas terminations it is not a rarity for
(Footnote continued on following page.)
52a
Opinion on Merits and Order for Submissions.
However, the referee may find that the employee had a
continuing disability or that he had not returned to
work. This finding would dictate a decision that the
employer or insurer shovid not have terminated the
employee's benefits. In that case, the referee will award
the payment of retroactive benefits under Pa. Stat. Ann.
tit. 77, §772 (Purdon Supp. 1982). Referees, though,
typically take one year or more to decide a case.
Stipulations of Fact 463.
We find that when an individual must forego the use of
his compensation benefits for as long as one year, even if
he receives reimbursement at the end of that period,’
that individual has undergone the deprivation of a
(Footnote continued from preceding page.)
the referee ultimately to determine that the employee is entitled to an
award more favorable than the complete termination of benefits
authorized by section 413, and (2) the time-lag between automatic
termination and the referee’s curative award averages one year. We
conclude that the interim deprivation of enjoyment of benefits to
which a worker has a statutory entitlement occurs frequently enough
and lasts long enough to rise to a level of constitutional significance.
’ Section 406.1 of the Workmen’s Compensation Act, Pa. Stat. Ann.
tit. 77, §717.1 (Purdon Supp. 1982), requires payment of interest at
ten percent per annum by employers or insurers “‘on all due and
unpaid compensation ....'’ By its terms this section arguably applies
only to delay in providing initial compensation payments after an
employee claims a right to benefits. The parties have not stipulated
that section 406.1 applies to awards of retroactive benefits upon an
unsuccessful petition to terminate invoking the automatic
supersedeas. Similarly, we have found no court which has held section
406.1 applicable. However, referees in the cases of two of the named
plaintiffs did award interest at the rate of ten percent per annum on
retroactive benefits awards. See Stipulations Concerning—Plaintiff
William Jones and Defendant American Mutual Liability Insurance
Company 424; Stipulations Concerning Plaintiff Charles Samuel and
Defendant S.W.I.F. 436. We therefore assume that section 406.1
applies here.
2 eres ote. nated ett :
53a
Opinion on Merits and Order for Submissions.
constitutionally protected property interest. During the
period of termination, he has lost significant income. He
will find this income difficult to replace through
borrowing in the market because he has no way of
convincing a lender that a referee will eventually award
benefits to him; most lenders are likely to assume
otherwise. In a similar case involving termination of
Social Security Disability Insurance benefits pending a
final hearing, the Supreme Court stated that it ‘has been
implicit in our prior decisions ... that the interest of an
individual in continued receipt of these benefits is a
statutorily created ‘property’ interest protected by the
Fifth Amendment.’ Mathews v. Eldridge, 424 U.S. 319,
332 (1976) (citations omitted).* We see no distinction for
this purpose between the federal disability benefits at
issue in Mathews and the state disability benefits at
issue in this case.
*One should note that in Mathews a terminated benefits recipient
who showed a continuing disability could recover back benefits. 424
U.S. at 339. Even so, “Eldridge ... raised at least a colorable claim
that because of his physical condition and dependency upon the
disability benefits, an erroneous termination would damage him in a
way not recompensable through retroactive payments.’’ 424 U.S. at
331.
* The automatic supersedeas terminates an employee's benefits. Some
individuals subject to the automatic supersedeas should not have
their benefits ‘‘terminated,"’ but rather “suspended.” An individual
with ‘“‘suspended”’ benefits does not receive regular checks. However,
if such an individual incurs any medical expenses attributable to his
work-related injury, he can receive reimbursement from his employer
or his employer's insurer. Stipulations of Fact 446(c). An individual
subject to the automatic supersedeas who has returned to work at a
higher wage may still have continuing medical problems associated
with his injury. He cannot receive the medical benefits to which the
statute entitles him because of the automatic supersedeas. This may
alter the pattern of medical treatment which he can obtain. This
alteration would constitute a deprivation not recompensable by a
subsequent award of retroactive benefits and interest.
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Opinion on Merits and Order for Submissions.
B. State Action
The Civil Rights Act of 1871 creates a private right of
action against
felvery person who, under color of any statute,
ordinance, regulation, custom, or usage, of any State
or territory or the District of Columbia, subjects, or
causes to be subjected, any citizen of the United
States or other person within the jurisdiction thereof
to the deprivation of any rights, privileges, or
immunities secured by the Constitution and laws
42 U.S.C. §1983 (Supp. V 1981). Plaintiffs here complain
that the automatic supersedeas fails to accord them their
constitutional right to due process before depriving them
of their property interest. Because the Fourteenth
Amendment creates this due process right, the right only
runs against a ‘‘state.’’ Thus, plaintiffs must show a
deprivation by defendants which satisfies both section
1983’s ‘‘under color of state law’’ requirement and the
Fourteenth Amendment’s ‘‘state action’ requirement.
The Supreme Court has stated, however, that “‘[i]f the
challenged conduct ... constitutes state action as
delimited by our prior decisions, then that conduct was
also action under color of state law and will support a
suit under §1983.’’ Lugar v. Edmondson Oil Co., 457 U.S.
922, 935 (1982); accord Jackson v. Temple University,
721 F.2d 931, 932-933 (3d Cir. 1983); Community Medical
Center v. Emergency Medical Services, 712 F.2d 878, 879
n. 3 (3d Cir. 1983). We therefore need only embark on one
unified inquiry for purposes of the due process clause
and section 1983.
55a
Opinion on Merits and Order for Submissions.
Our primary guidance in that inquiry comes from three
recent Supreme Court opinions. See Lugar v. Edmondson
Oil Co., 457 U.S. 922 (1982);'° Rendell-Baker v. Kohn, 457
U.S. 830 (1982);"' Blum v. Yaretsky, 457 U.S. 991
(1982).'? Since the Supreme Court’s state action trilogy,
the Court of Appeals for the Third Circuit has given
'° Lugar involved a challenge to a Virginia prejudgment attachment
statute.
The prejudgment attachment procedure required only that
respondents allege, in an ex parte petition, a belief that
petitioner was disposing of or might dispose of his property in
order to defeat his creditors. Acting upon that petition, a clerk
of the state court issued a writ of attachment, which was then
executed by the county sheriff.
457 U.S. at 924. The Court found sufficient state involvement in thi®
process to make the private creditor’s attachment under the Virginia
statute state action.
'' Rendell-Baker involved a teacher’s suit against her former
employer. The former employer, a school for maladjusted high-school
students, received virtually all its income from tuition paid by state
or local governmental authorities. Under the pertinent Massachusetts
statute, these state and local authorities had an obligation to provide
special education through private schools where public schools were
not equipped to provide such education. The Court found insufficient
relationship between the government authorities and the school to
make termination of the teacher state action.
'?In Blum the Court considered a challenge to procedures by which
New York nursing homes determined whether to transfer Medicaid
patients from higher-care to lower-care facilities. Even though (a)
most such institutions received large amounts of state funding, (b)
the state regulated the institutions carefully, and (c) the state
typically adjusted patients’ Medicaid benefits on the basis of the
nursing homes’ transfer decisions, the Court found no state action.
/
56a
Opinion on Merits and Order for Submissions.
some further guidance ' on the issue of state action. See
'’ Plaintiffs have suggested in another context that. decisions of our
court of appeals do not bind us when we sit as a three-judge district
court; plaintiffs suggest that we need only follow decisions of the
Supreme Court, the court to which appeal lies. Plaintiffs’
Memorandum of Law at 11. The argument draws support from a
suggestion, albeit not a flat contention, to that effect advanced by
Professor Moore. See 1B J. Moore, Moore's Federal Practice
§40.402[1] n. 17 (2d Ed. 1983); see also Confederated Tribes of Colville
v. Washington, 446 F. Supp. 1339, 1356 n. 16 (E.D. Wash. 1978)
(three-judge court declining to decide the question but adverting to
the issue).
Both Professor Moore and Confederated Tribes cite the following
phrase from Jehovah's Witnesses in Washington v. King County
Hospital, 278 F. Supp. 488 (W.D. Wash. 1967), aff'd mem., 390 U.S.
598 (1968): “In this special three-judge court case we are not bound
by any judicial decisions other than those of the United States
Supreme Court.” 278 F. Supp. at 504-505. The Jehovah's Witnesses
court, however, used this statement to introduce a discussion of state
court precedents on a question of federal law. Further, the state court
precedents supported the district court's conclusion. We have found
no case support other than Jehovah's Witnesses for the proposition
that a three-judge court need not follow its court of appeals. In fact,
we have found considerable authority to the contrary. See Finch v.
Mississippi State Medical Ass'n, Inc., 585 F.2d 765, 773 (2d Cir.
1978) (“the three-judge court was required to analyze carefully [a
court of appeals decision] because, as a district court within the
Second Circuit, it was bound to follow the law of the circuit’’); Lewis
v. Rockefeller, 431 F.2d 368, 371 (2d Cir. 1970) (no reason to convene
three-judge court when decision of court of appeals in prior case
determines issue); Russell v. Hathaway, 423 F. Supp. 833, 835 (N.D.
Tex. 1976) (three-judge court analyzing reasons for following the
court of appeals); Hopson v. Schilling, 418 F. Supp. 1223, 1234-1235
n. 15 (N.D. Ind. 1976) (a three-judge court would be bound by court
of appeals opinion on point, so not necessary to convene three-judge
panel); Athanson v. Grasso, 411 F. Supp. 1153, 1157 (D. Conn. 1976)
(“As a district court, although composed of three judges, we are
required to follow the law of our own circuit insofar as it is
pertinent.’’). For discussion of earlier precedent on the question, see
Alabama NAACP State Conference of Branches v. Wallace, 269 F.
Supp. 346, 350 (M.D. Ala. 1967) (three-judge court). We therefore feel
ourselves bound not only by pertinent decisions of the Supreme
Court, but also by pertinent decisions of the Court of Appeals for the
Third Circuit.
ae eee en
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Opinion on Merits and Order for Submissions.
Jackson v. Temple University, 721 F.2d 931 (3d Cir.
1983);'* Nguyen v. United States Catholic Conference,
719 F.2d 52 (3d Cir. 1983);!° Community Medical Center
'‘* In Jackson, plaintiff, after his termination, sued his union and his
former employer under section 1983 and under the National Labor
Relations Act. Jackson contended that the union had improperly
failed to press his grievance to arbitration. The Court of Appeals
found no state action in the union's actions. The court accepted the
district court’s assumption arguendo that an action by Temple
University constituted state action and proceeded to determine that
the University had deprived Jackson of no rights.
In this context we feel it appropriate to point out that one member
of this panel has recently held that, because of Temple University’s
“state related’’ status (involving substantial state funding and
appointment of one-third of the trustees by high state officials),
Temple has a ‘‘symbiotic relationship’’ with Pennsylvania sufficient
under Burton v. Wilmington Parking Authority, 365 U.S. 715 (1961), .
to make all Temple's actions ‘state action.’’ Schier v. Temple
University, Civil Action No. 82-3554 (E.D. Pa. Dec. 8, 1983) (bench
opinion per Pollak, J.); accord Isaacs v. Board of Trustees of Temple
University, 385 F. Supp. 473 (E.D. Pa. 1974). The decisions in Schier
and Isaacs are harmonious with the decision of our Court of Appeals
in 1977 that actions of the University of Pittsburgh, another ‘‘state
related” institution, are “state action.” Braden v.. University of
Pittsburgh, 552 F.2d 948 (3d Cir. 1977). But the Court of Appeals will
soon reconsider the constitutional status of the University of
Pittsburgh, since a district court has recently determined that the
Court of Appeals’ Braden analysis of the University of Pittsburgh's
relationship with the Commonwealth has been undercut by the
Supreme Court’s decisions in Lugar, Rendell-Baker, and Blum.
Krynicky v. University of Pittsburgh, 560 F. Supp. 803 (W.D. Pa.
1983), appeal docketed, No. 83-5471 (3d Cir. 1983). We mention these
matters to make clear that the instant opinion, which does not rest
on a Burton state-action analysis, reflects no view by the members of
this court on the problem shortly to be addressed by the Court of
Appeals in Krynicky.
'S Nguyen involved a claim that the United States Catholic
Conference violated the Fifth Amendment in its distribution of
benefits to Indochinese refugees. Although the federal government
reimbursed some benefits under the Indochina Migration and Refugee
Assistance Act of 1975 through a contractual relationship with the
Catholic Conference, the Court of Appeals found no state action.
58a
Opinion on Merits and Order for Submissions.
uv. Emergency Medical Services, 712 F.2d 878 (3d Cir.
1983).'°
Lugar has particular relevance to this case. In Lugar
the Court refined the ‘“‘close nexus’’ analysis propounded
in Jackson v. Metropolitan Edison Co., 419 U.S. 345
(1974). The Lugar court divided state-action analysis into
two parts:
First, the deprivation must be caused by the
exercise of some right or privilege created by the
state or by a rule of conduct imposed by the state or
by a person for whom the state is responsible. ...
Second, the party charged with the deprivation
must be a person who may fairly be said to be a
state actor.
457 U.S. at 937. We begin our analysis of state action by
considering Lugar’s first prong. We then move on to the
more difficult question whether employers and insurers
who invoke section 413’s automatic supersedeas ‘‘may
fairly be said to be...state actors{s].”’
(1) State-created right or privilege
An employer or insurer who believes «hat an employee
receiving worker’s compensation benefits has completely
recovered or has returned to work at the same or higher
pay must nevertheless continue to pay compensation
benefits unless the employer or insurer qualifies for a
‘In Community Medical Center the plaintiff challenged designation
of another hospital as the “resource hospital’’ for the Scranton area.
Defendant, a private non-profit corporation, existed to contract with
the state and federal governments as a “lead agency’’ under several
grants programs. Nevertheless, the Court of Appeals found no state
action under any of several theories.
4
— ae a Pnpuctee in
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Opinion on Merits and Order for Submissions.
supersedeas under section 413. In order to qualify for an
automatic supersedeas, the employer or insurer must file
a petition with the Bureau of Worker’s Compensation (a)
accompanied by the affidavit of a doctor averring
complete recovery or (b) reciting that the employee has
returned to work at a wage at least equalling his prior
wage. If an employer or insurer suspends compensation
payments without qualifying for this automatic
supersedeas and without a referee’s adjudication, the
employer or insurer becomes liable for penalties of ten, or
even twenty, percent of the withheld payments. Pa. Stat.
Ann. tit. 77, $774.1 (Purdon Supp. 1982).
Termination through invocation of the automatic
supersedeas provision, then, constitutes ‘‘the exercise of
some right or privilege created by the state.’’ In that
sense, this case resembles Lugar v. Edmondson Oil Co.,
457 U.S. 922 (1982); in both cases the deprivation
requires a special filing process specifically created by
the state.
The automatic supersedeas provision does not merely
codify the ordinary way of doing things, as the Court
characterized section™ 7-210 of the New York Uniform
Commercial Code in Flagg Brothers, Inc. v. Brooks, 436
U.S. 149 (1978). Section 7-210 allowed a warehouseman
to sell goods in his possession to satisfy his lien,
remitting the owner of the goods to asserting in a
subsequent lawsuit any claim that the warehouseman
had no proper lien. The Court rejected a claim that
section 7-210 wes unconstitutional in authorizing a
transfer of the owner’s goods to a third person without a
hearing. The Court reasoned that the challenged
application of section 7-210 involved no state action
because, among other things, section 7-210 did not
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Opinion on Merits and Order for Submissions.
substantially change the state’s relation to the
transaction.’ By contrast, absent the automatic
supersedeas provision, an employer or insurer could not
terminate an individual’s benefits without a referee’s
adjudication. If the employer or insurer did so terminate,
the Workmen's Compensation Act would not only award
damages, but would also impose penalities.
(2) State Actor
Having found that section 413 satisfies Lugar’s first
prong, we now turn to the second requirement that ‘‘the
party charged with the deprivation must be a person
who may fairly be said to be a state actor.” 457 U.S. at
937. In analyzing this requirement, we have found it
useful to distinguish four sorts of employers and insurers
who may invoke the automatic supersedeas provision of
section 413.
First, we consider the government as an employer. The
Act covers employees of the Commonwealth and of local
governmental entities by virtue of Pa. Stat. Ann. tit. 77,
§21 (Purdon 1952), which defines ‘employer’ to include
'"In our discussion of Flagg Brothers here, we have somewhat
anachronistically assumed that the Flagg Brothers opinion applied
Lugar’s two-pronged state-action analysis. The Court, of course, had
not yet expressly formulated this analysis in 1978. Therefore, the
Flagg Brothers opinion does not expressly hold that the U.C.C.
involved no state-created right or privilege. We read the Flagg
Brothers result as resting on this first prong of the Lugar analysis.
Because the Court in Flagg Brothers did not expressly consider as
separate the issues of whether a state-created right or privilege
existed and whether the person responsible for the deprivation could
fairly be said to be a state actor, one could instead read Flagg
Brothers as holding that the warehouseman was not a state actor,
even though the warehouseman employed a state-created right or
privilege. We prefer the first reading.
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Opinion on Merits and Order for Submissions.
“the Commonwealth, and all governmental agencies
created by it.” Public employers may choose not to
insure against their worker’s compensation liability
under the Act. For example, counsel represented to us at
argument that the Pennsylvania Turnpike Commission
self-insures. Tr. of Oral Arg. at 23. Thus, in section
I11(B)(2)(a) of this opinion, we consider whether self-
insuring public employers are state actors.
Most public employers, however, insure through the
State Workmen’s Insurance Fund (‘‘SWIF’’), an insurer
administered by the State Workmen’s Insurance Board.
See Pa. Stat. Ann. tit. 77, §221 (Purdon Supp. 1982).
Section III(B)(2)(b) of this opinion considers whether
SWIF is a state actor when it invokes the automatic
supersedeas provision on behalf of a public employer.
Private employers can also insure through SWIF.
Section III(B)(2)(c) of this opinion considers whether
SWIF is a state actor when it invokes section 413 on
behalf of a private employer.
Finally, section I11(B)(2)(d) considers whether a private
insurer or a self-insuring private employer is a state
actor when it invokes the automatic supersedeas
provision.
(a) Self-Insured Public Employers
State action exists when a self-insured public employer
invokes section 413’s automatic supersedeas procedure.
By inquiring whether a state-created procedure involving
a state actor worked a particular deprivation, Lugar’s
two-pronged test seeks to identify that conduct ‘“‘fairly
attributable to the state.’ 457 U.S. at 937; accord
Rendell-Baker v. Kohn, 457 U.S. at 838; Blum uv.
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Yaretsky, 457 U.S. at 1004 (“The purpose of this
requirement is to assure that constitutional standards
are invoked only when it can be said that the State is
responsible for the specific conduct ....”); Nguyen v.
United States Catholic Conference, 719 F.2d 52, 54 (3d
Cir. 1983); Community Medical Center v. Emergency
Medical Services, 712 F.2d 878, 879 (3d Cir. 1983).
However, the two aspects of the test ‘‘collapse into each
other when the claim of a constitutional deprivation is
directed against a party whose official character is such
as to lend the weight of the state to his decisions.”’
Lugar, 457 U.S. at 937. Thus, when a state agency or a
local government invokes section 413 against one of its
employees, the state is the actor.
OO
(b) Public Employers Insured by SWIF
The analysis becomes slightly more complicated when
a public employer insures through SWIF. (Under
Pennsylvania practice, the insurer, and not the employer,
becomes the party responsible for payment of
compensation benefits, see Cease v. Thomas, 155 Pa.
Super. 215, 38 A.2d 547 (1944), and thus the insurer
becomes the party which will actually invoke the
automatic supersedeas.
At oral argument, counsel for the Commonwealth
defendants seemed to concede that when SWIF acted on
behalf of a public employer, state action existed. Tr. of
Oral Arg. at 20. We give this concession close
consideration because recent precedents cast some doubt
on the existence of state action when a government
agency “contracts out” its responsibilities. See Rendell-
Baker v. Kohn, 457 U.S. 830 (1982) (education for
a
ee
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Opinion on rits and Order for Submissions.
/p
disturbed students); Nguyen v. United States Catholic
Conference, 719 F.2d 52 (3d Cir. 1983) (payment of relief
funds to refugees); cf. White v. Massachusetts Council of
Construction Employers, 103 S. Ct. 1042 (1983) (city
which will only hire contractors who themselves hire half
their workers from the city does not violate the
commerce clause).
The State Workmen's Insurance Fund strongly argues
that it is not a state agency and therefore does not have
an “official character ...such as to lend the weight of
the state to [its] decisions.’’ Lugar, 457 U.S. at 937. We
disagree.
SWIF'’s argument proceeds from the limitation on the
state's liability for claims on the fund to the assessments
and premiums paid by insured employers. See Pa. Stat.
Ann. tit. 77, §221 (Purdon Supp. 1982). But that same
sentence provides that ‘‘[s]Jluch Fund shall be
administered by the [State Workmen’s Insurance]
Board ....’’ Jd. The Board consists of the Commissioner
of Labor and Industry, the Insurance Commissioner, and
the State Treasurer. Pa. Stat. Ann. tit. 77, §211 (Purdon
1952). Further,
[t]he officers and employes of the State Workmen's
Insurance Board created by the act to which this is
a supplement shall be deemed and held to be, for all
purposes whatsoever, officers and employes of the
Commonwealth of Pennsylvania, and shall be
entitled to and have and exercise all the rights,
powers, and privileges, and be subject to all the
duties, restrictions, and penalties, of other officers
and employes of the Commonwealth.
Pa. Stat. Ann. tit. 77, §381 (Purdon 1952).
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Opinion on Merits and Order for Submissions.
In short, three high state officials, collectively
constituting the State Workmen’s Insurance Board, have
sole supervision of SWIF’s administration. Moreover,
these officials and their board employees are ‘‘for all
purposes whatsoever, officers and employees of the
Commonwealth of Pennsylvania... .’’ They are subject
to all the restrictions of other officers and employees of
the Commonwealth. These restrictions include the
Fourteenth Amendment. Therefore, we find that when
SWIF acts, the state acts. See Pennsylvania v. Board of
Trusts, 353 U.S. 230 (1957); Pennsylvania v. Brown, 392
F.2d 120 (3d Cir. 1968), cert. denied, 391 U.S. 921 (1968).
(c) Private Employers Insured by SWIF
Although counsel fér the Commonwealth seems to
have drawn a distinction between SWIF acting as
insurer for a public employer and SWIF acting as insurer
for a private employer, our analysis in the preceding
subsection leads to the conclusion that SWIF acts for
the state whenever it acts. Accordingly, the force of that
argument requires us to find that state action exists
when SWIF invokes the automatic supersedeas provision
of section 413 even when SWIF does so on behalf of a
private employer.
(dj Private Insurers and_ Self-Insured_ Private
Employers
We have found state action, then, whenever a public
entity insures itself and whenever either a public or
private employer uses SWIF to insure. In any of these
cases, invocation of the automatic supersedeas by the
self-insuring public employer or by the public insurer is
‘fairly attributable to the state’’ because the state itself
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Opinion on Merits and Order for Submissions.
invokes section 413. We cannot base our conclusion on
this ground, however, when a private insurer or employer
uses section 413.
We note initially that Silas v. Smith, 361 F. Supp.
1187 (E.D. Pa. 1973), dealt with the _ private
employer/private insurer situation. See our discussion at
p. 2, supra. The Silas court found no state action in a
private insurer’s invocation of the automatic
supersedeas.'* The Pennsylvania Commonwealth Court
was assessing the private employer/private insurer
situation when, in reliance on Silas, it found the current
section 413 constitutionally acgeptable. Henderson uv.
Workmen’s Compensation ABpeal Bd. (Rockwell
International), 69 Pa. Commw. 613, 452 A.2d 277 (1982),
petition for allowance of appeal denied (Pa. March 8,
1983); see also Commonwealth Dept. of Labor and
Industry v. Workmen’s Compensation Appeal Bd., 58 Pa.
Commw. 413, 416 n.3, 427 A.2d 1277, 1278 n. 3
(1981)(citing Silas for the proposition that notice and a
hearing are not required for an automatic supersedeas in
'8The Silas court also found that the process accorded was in
conformity with due process standards. Prior to Silas a three-judge
court had held Georgia’s automatic supersedeas unconstitutional in
the private insurer/private employer context. Davis v. Caldwell, 53
F.R.D. 373 (N.D. Ga. 1971).
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Opinion on Merits and Order for Submissions.
a case involving a private insurer). We do not find these
precedents dispositive here.'®
'® Decisions by Pennsylvania courts on issues of federal law merit our
respectful consideration, but they are not controlling precedents.
In analyzing Silas’ precedential weight, we note that, even if we
believed that Silas stood on all fours with this case, we could not
merely follow Silas without further inquiry. In Farley v. Farley, 481
F.2d 1009 (3d Cir. 1973), the court considered an appeal from a
district judge's ruling which had dismissed a complaint without
convening a three-judge court on the ground that a decision of a prior
three-judge panel in the same district was controlling. The Court of
Appeals initially held that the earlier three-judge opinion did not
completely determine the question in Farley. The Court of Appeals
then wrote: ‘even if Kaelin had decided the precise issue, its holding
is not a precedent binding on other courts. The decision of a three-
judge court is entitled to no more weight than any other district
court decision.’’ 481 F.2d at 1012; accord San Diego Unified Port
District v. Gianturco, 651 F.2d 1306, 1315 n. 24 (9th Cir. 1981), cert.
denied, 455 U.S. 1000 (1982); Mazer v. Weinberger, 385 F. Supp. 1321,
1324 (E.D. Pa. 1974)(three-judge court under 28 U.S.C. §§2282--2284
declining to follow previous three-judge court’s decision), vacated on
other grounds, 422 U.S. 1050 (1975); Johnson v. Hodges, 372 F. Supp.
1015, 1020 (E.D. Ky. 1974)(one-judge district court declining to follow
previous three-judge court’s decision). Thus, while we take Silas
seriously as persuasive precedent, Farley enjoins us to consider the
issues in this case anew.
We do not, however, believe that Silas does stand on all fours with
this case even in our consideration of state action on the part of
private insurers. The Silas court characterized the worker's
compensation arrangement as one of private contract:
The possessory interest in property emphasized in Fuentes [v.
Shevin, 407 U.S. 67 (1972),] is absent here. What is here
involved is a contractual (although sanctioned by statute) claim
to benefits which the other party to the contract disputes. As
such, this interest is indistinguishable from the interest of the
recipient of funds in any commercial situation in which periodic
payments are terminated pending resolution of the underlying
dispute.
561 F. Supp. at 1192. (Footnote continued on following page.)
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Opinion on Merits and Order for Submissions.
We hold that invocation of section 413’s automatic
supersedeas provision by a private insurer or by a
private employer involves state action. The Supreme
Court has ‘‘consistently held that a private party’s joint
participation with state officials in the seizure of
disputed property is sufficient to characterize that party
as a ‘state actor’ for purposes of the Fourteenth
Amendment.” Lugar, 457 U.S. at 941. ‘‘[I]n this context
‘joint participation’ [does not require] something more
than invoking the aid of state officials to take advantage
of state created attachment procedures.’ 457 U.S. at
942.
In order to invoke the automatic supersedeas, an
insurer or employer must file a petition on a form
provided by the state. A state agency, the Bureau of
Worker’s Compensation, must review the petition before
the supersedeas may take effect. Although the Bureau
(Footnote continued from preceding page.)
In order to characterize a situation as one of ordinary contract, the
parties must have some option to change the usual distribution of
rights. See, e.g., Silas, 361 F. Supp. at 1188 (‘Neither the employer
nor the employee is bound to accept the provisions of the Workmen's
Compensation Act ....’’). Thus, in the ordinary commercial situation
the payor may terminate periodic payments pending resolution of a
dispute, but the parties can always decide at the beginning to provide
security for the payee so that the payee, and not the payor, in effect
holds the funds during a dispute.
Since the decision in Silas, Pennsylvania has amended the
Workmen's Compensation Act to make it mandatory. Act No. 263,
§5, 1974 Pa. Laws 782, 784 (repealing section 302 of the Act, former
Pa. Stat. Ann. tit. 77, §$461, 462 (Purdon 1952)). We believe that the
change in the coverage of the Act from optional to mandatory
attenuates Silas’ analogy of section 413’s automatic supersedeas to
the operation of any ordinary commercial contract. The mandatory
quality of the Act now makes every aspect of the compensation
scheme’s operation appear more “‘public’”’ and less “private.”
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Opinion on Merits and Order for Submissions.
does not review the petition’s merits, it does review the
petition for formal compliance with the Workmen's
Compensation Act; the Bureau has a form for returning
inadequate petitions. Unless the insurer or employer
satisfies the Bureau of the petition’s compliance with
section 413, the insurer or employer cannot terminate the
employee’s benefits. Further, the insurer/employer relies
on the Bureau to notify the employee of the termination
of benefits.”
Section 413’s automatic supersedeas procedure
requires a filing with the Bureau of Worker’s
Compensation. This filing is sufficient to constitute
? Blum v. Yaretsky, 457 U.S. 941 (1982), is not at odds with the
conclusion that this involvement of the state in an automatic
supersedeas petition constitutes ‘‘joint participation.’’ Blum involved
a challenge to a New York statute which permitted a private board of
doctors at each nursing home to determine if a Medicare recipient
required less intensive care. If the doctors made this determination,
the nursing home would transfer the patient to a less care-intensive
facility. In finding no state action, the Court took pains to point out
that the state never reviewed the transfer decision in any way. While
the state received notice of the transfer, the state only decided
whether or not to adjust the patient’s Medicare benefits. 457 U.S. at
1010. Blum, then, leaves open the question whether, had New York
reviewed the transfer decision, New York would then have been
deemed, for Fourteenth Amendment purposes, to be a _ joint
participant in the transfer decision. See also Jackson v. Metropolitan
Edison Co., 419 U.S. 351, 354-355 (1974)(specifically distinguishing a
termination of electricity service with state approval from a
termination initiated according to procedures approved by the state
in a general tariff); Community Medical Center v. Emergency Medical
Services, 712 F.2d at 881 (noting the Supreme Court’s distinction
between ‘‘direct”’ and “‘indirect’’ involvement).
et ae ee eee
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Opinion on Merits and Order for Submissions.
‘joint participation’ and to subject private invocation of
the automatic supersedeas to the due process clause.”!
*1 In this section we have concluded that we can fairly attribute to
the state an invocation of section 413’s automatic supersedeas. We
have based this conclusion upon section 413’s requirement that an
employer or insurer file a petition with the Bureau of Workmen's
Compensation which the Bureau checks for formal compliance with
the Act and the Bureau’s regulations, and which the Bureau sends to
the terminated employee. We think these ingredients of formal and
systemic participation by state personnel stamp the termination of
benefits as the state action for which the state is accountable, within
the intendment of the Fourteenth Amendment, under the controlling
decisions of the Supreme Court.
We acknowledge, however, some sense of unease about applying a
mode of legal analysis which, as Judge Sloviter has cogently phrased
it, “hinges a finding of state action on what appears to be the
somewhat superficial factor of involvement by a state official rather
than on a more reasoned approach which takes into account state
interests and state policy ....’’ Chrysler Corp. v. Fedders Corp., 670
F.2d 1316, 1327 (3d Cir. 1982). Such a ‘‘more reasoned approach’’
would very likely ask the question whether the statutorily defined
system of worker’s compensation is in its fundamental social and
economic implication more akin to a contractual undertaking of
employer and employee than it is to a disability insurance system
established by the state as part of its welfare network. That wouid
seem a more nourishing question than the somewhat wooden ‘state
action’’ logomachy which the Court’s jurisprudence has required
judges to pursue for a full one hundred years. Civil Rights Cases, 109
U.S. 3 (1883).
To recognize that the prescribed analysis is a wooden one—and,
moreover, one which is by no means easy, Community Medical
Center v. Emergency Medical Services, 712 F.2d at 879 n.4—is not to
indict it. The lines within which conventional ‘‘state action’’ analysis
has been channeled by the Supreme Court have the advantage of
being susceptible of relatively systematic application from case to
case.
Nonetheless, we comfort ourselves in this case with the feeling that
if the alternative approach adumbrated by Judge Sloviter could be
rigorously pursued, it would yield the same answer that we have
arrived at by a more conventional path.
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Opinion on Merits and Order for Submissions.
(C) Due Process
Having decided that benefits terminations under
section 413’s automatic supersedeas provision must
comply with the Fourteenth Amendment, we now
consider whether section 413 accords plaintiffs sufficient
process to constitute due process. See, e.g., Perri uv.
Aytch, No. 83-1072, Slip Op. at 9 (3d Cir. Dec. 22, 1983)
(“Even though Perri had a property interest in her
probationary employment, she must still demonstrate
that she was deprived of the interest without due process
of law.”’) We agree with the Supreme Court of Iowa that
Mathews v. Eldridge, 424 U.S. 319 (1976), makes the
automatic supersedeas unconstitutional. See Auxier v.
Woodward State Hospital-School, 266 N.W.2d 139 (Iowa
1978), cert. denied, 429 U.S. 830 (1979) (holding Iowa
version of section 413 unconstitutional).
In Mathews, the Supreme Court held that the Social
Security Administration need not provide an evidentiary
hearing before terminating an _ individual’s Social
Security Disability Insurance benefits. Cf. Goldberg v.
Kelly, 397 U.S. 254 (1970) (requiring pretermination
evidentiary hearing for recipient of AFDC). The Court
concluded in Mathews that disability insurance
recipients threatened with a loss of benefits were
accorded a sufficient pretermination process, albeit that
process was not of a formal evidentiary nature, so that
an evidentiary hearing could be postponed until after
termination.
22 We note that the Silas court did not have the benefit of Mathews’
teachings.
et EE Ae Sek. ee ol We Om
ee Scenics h ins tee:
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Opinion on Merits and Order for Submissions.
The Social Security procedure provided that
[w]henever the agency’s tentative assessment of the
beneficiary’s condition differs from his own
assessment, the beneficiary is informed that benefits
may be terminated, provided a summary of the
evidence upon which the proposed determination to
terminate is based, and afforded an opportunity to
review the medical reports and other evidence in his
case file. He may also respond in writing and submit
additional evidence.
424 U.S. at 337-338 (footnote omitted); see also
Washington v. Secretary of Health and Human Services,
718 F.2d 608, 609-610 (3d Cir. 1983) (describing waiver of
these procedural protections). The procedures sustained
in Mathews were perceived by the Court as ‘‘provid[ing]
the claimant with an effective process for asserting his
claim prior to any administrative action ....’’ 424 U.S.
at 349. In marked contrast, section 413 provides no
notice whatsoever until after the termination of benefits
pending a final hearing.”
IV.
The foregoing discussion has led us to the conclusion
that operation of the automatic supersedeas authorized
by section 413 of the Pennsylvania Workmen's
Compensation Act involves conduct reasonably
attributable to the state and that section 413 does not
*® The Mathews court also noted several other procedural protections
primarily involving substantive agency review of a file before
termination. 424 U.S. at 337. While we view the absence of similar
provisions here as incrementally compounding the procedural frailty
of the system, what is from a due process perspective the fatal flaw
in section 413 is the lack of notice and of an opportunity to submit
any evidence or argument before termination.
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Opinion on Merits and Order for Submissions.
accord worker's compensation recipients due process.
Thus, plaintiffs have made out a violation of 42 U.S.C.
§1983 (Supp. V 1981). Plaintiffs are entitled to entry of a
judgment declaring the unconstitutionality of the
automatic supersedeas provision of section 413.
Invalidation of the automatic supersedeas provision
does not call for invalidation of any other provision of
the Workmen’s Compensation Act, even though the Act
contains no severability provision. ‘‘Under Pennsylvania
law, separate provisions of a statute are presumed
severable, and any particular one will survive a decision
voiding another unless it is so interrelated with the void
provision or incomplete without it that the legislature
could not have intended it to stand alone.”’ Stoner v.
Presbyterian Hospital, 609 F.2d 109, 112 (3d Cir. 1979)
(citing 1 Pa. Cons. Stat. Ann. $1925).
** A different perspective on separability would come into play if, on
appeal, our holding that every invocation of section 413 involves
state action is found to be too sweeping. In section III(B)(2) of this
opinion we determined that, from the perspective of the Fourteenth
Amendment and section 1983, the temporary termination of benefits
was a deprivation fairly attributable to the state whether the
automatic supersedeas was utilized by a self-insuring government
agency, by SWIF on behalf of a governmental or a private employer,
or by a private insurer/employer. Assuming arguendo we were wrong
in viewing a private insurer/employer’s utilization of the automatic
supersedeas procedure as state action, the question would arise
whether the automatic supersedeas should be held valid in that
aspect and invalid in the other aspects, or should be heid invalid in
its entirety. We think it highly unlikely that the Legislature would
differentiate between the procedural entitlements of employees on the
basis of their employer or their employer’s choice of insurer merely
because the Constitution permitted this distinction. Accordingly, we
would conclude that if the automatic supersedeas provision is invalid
as to any class of employers or insurers, the automatic supersedeas
must be stricken in its entirety.
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DORA Blt AS ELAR. ALA oe Pais aN Laps
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Opinion on Merits and Order for Submissions.
RICHARD BAKSALARY, et al.
v.
SMITH, et al.
C.A. No. 76-429.
4)
Vv
%
ARLIN M. ADAMS
ADAMS, J., concurring
For nearly two decades, federal courts have endeavored
to define the contours of due process rights applicable to
state and federal entitlement programs. Today, this
court turns its attention to the procedural constraints
that due process places upon the Pennsylvania system of
workmen’s compensation terminations.
In Goldberg v. Kelly, 397 U.S. 254 (1969), the Supreme
Court made it clear that the creation of a state
entitlement program vests its recipients with due process
protection against arbitrary termination of benefits.
While Goldberg mandated an evidentiary hearing prior to
termination of benefits under the Aid to Families with
Dependent Children (AFDC) program, its emphasis upon
the destitution of AFDC recipients left open the
possibility that due process could be satisfied by less
than a pre-termination evidentiary proceeding for the
beneficiaries of other entitlement programs.
Subsequently, in Mathews v. Eldridge, 424 U.S. 319
(1976), the Court held that certain’ termination
proceedings for Social Security disability benefits could
be discontinued despite the absence of an evidentiary
hearing and not violate due process so long as the
74a
Opinion on Merits and Order for Submissions.
termination procedures were sufficiently reliable. Because
workers’ compensation is manifestly more comparable to
the disability benefits involved in Mathews than the
more protected AFDC benefits in Goldberg, I believe
that further elaboration of the due process question
presented in this case is in order.
5.
Recipients of statutorily created benefits have a
property interest in the continued receipt of those
benefits. Board of Regents v. Roth, 408 U.S. 564, 576-
578 (1972); Bell v. Burson, 402 U.S. 535, 539 (1971);
Goldberg, supra, 397 U.S. at 261-62. The existence of
this constitutionally protected property interest was not
disputed in Mathews, where the Court noted,
Procedural due process imposes constraints on
governmental decisions which deprive individuals of
“liberty” or ‘property’ within the meaning of the
Due Process Clause of the Fifth or Fourteenth
Amendment... .
The Court consistently has held that some form of
hearing is required before an individual is finally
deprived of a property interest. ... The fundamental
requirement of due process is the opportunity to be
heard “at a meaningful time and in a meaningful
manner.”
424 U.S. at 332-33 (citations omitted).
Taking the lead from Matiews, this Court must
determine whether the Pennsylvania supersedeas
provision oirers recipients of workmen’s compensation
payments a “meaningful time’ and “meaningful
iad bo
a it RCT Cah Nn Hite a Re bas!
i
;
4
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75a
Opinion on Merits and Order for Submissions.
manner” to challenge terminations of such payments
within the scope of due process. This determination must
be made in the context of the specific ‘‘time, place and
circumstances” of the challenged state procedure.
Cafeteria Workers v. McElroy, 367 U.S. 886, 895 (1961);
Morrissey v. Brewer, 408 U.S. 471, 481 (1972). Thus
under Mathews a reviewing court is compelled to balance
the following factors:
First, the private interest that will be affected by
the official action; second, the risk of an erroneous
deprivation of such interest through the procedures
used, and the probable value, if any, of additional or
substitute procedural safeguards; and finally, the
Government’s interest, including the function
involved and the fiscal administration burdens that
the additional or substitute procedural requirement
would entail.
424 US. at 335.
My concern in the present case is with the second of
the enumerated Mathews factors: whether’ the
supersede:s termination procedure is sufficiently reliable
to protect against erroneous termination. As_ the
majority opinion makes clear, the challenged
Pennsylvania statute offers the terminated compensation
recipient only post-facto restoration of, benefits. While
the statute does allow for interest on the unpaid amounts
found to be due as well as attorneys’ fees in case of
wrongful termination, a principal question in this
proceeding, as I see it, is whether such an arrangement
offers sufficient indicia of reliability to satisfy
constitutional due process requirements.
76a
Opinion on Merits and Order for Submissions.
II.
In Mathews the Supreme Court weighed the specific
needs of the recipient class and the _ prescribed
termination procedures that allow for the cessation of
benefits without a full evidentiary hearing. The Court
found that the potential injury to a discontinued
recipient was the same as in Goldberg: the interrupted
receipt of income pending final administrative review of
the termination decision. Two critical factors
distinguished the affected class in Mathews from that in
Goldberg. First, as in the present case, disability
recipients are not as destitute as AFDC recipients and
therefore the ‘‘potential deprivation here is likely to be
less than in Goldberg....’’ 424 U.S. 341.' Second,
Mathews focused on ‘“‘the fairness and reliability of the
existing pretermination procedures, and the probable
value, if any, of additional procedural safeguards.’’ 424
U.S. at 343. Mathews identified eight features of the
social security disability statute that provided sufficient
evidence of fairness and reliability:
1. Termination follows continuing eligibility
monitoring by a _ physician and _ non-medical
administrator;
' In Goldberg the Court emphasized:
The crucial factor in this context—a factor not present in the
case of ... virtually anyone else whose governmental
entitlements are ended—is that termination of aid pending
resolution of a controversy over eligibility may deprive an
eligible recipient of the very means by which to live while he
waits.
397 U.S. at 264. Mathews found this exigency created by poverty not
to apply to disability recipients, ‘‘although the degree of difference
can be overstated.’’ 424 U.S. at 341.
77a
Opinion on Merits and Order for Submissions.
2. There is periodic communication between the
two monitors and the disability recipient;
3. In case of conflict between the monitors and
the disability recipient, the recipient is examined
prior to termination by an independent physician;
4. The recipient is provided immediate notice of
agency intent to terminate benefits;
5. The recipient and/or his/her representative is
allowed full access to all information relied upon by
the state agency prior to termination and is allowed
to respond in writing and submit additional
evidence;
6. The state agency determinations are not final
until reviewed by an examiner in the Social Security
Administration’s Bureau of Disability Insurance;
7. Benefits are terminated two months after the
date when disability is found to have ceased in order
to minimize economic shock:
8. Final determination is premised on technical,
medical evaluation which does not’ require
adversarial process beyond the submission of
affidavits and documentary evidence.
424 U.S. at 337-38. The Pennsylvania supersedeas
termination procedure therefore must be scrutinized in
light of these features to determine whether it comports
with the due process: requirements of the Constitution.
78a
Opinion on Merits and Order for Submissions.
III.
Judged against the procedures approved by the
Supreme Court in Mathews, the Pennsylvania
supersedeas has two grave faults. First, the statute
imposes no requirement of notice to the employee prior
to termination. Under 77 Penna. Stat. Ann. $774 (Purdon
1982), the filing of a supersedeas petition, accompanied
by an affidavit of a physician declaring that the claimant
has recovered, suspends compensation benefits to the
extent that such benefits would cease if all the
allegations contained in the petition were true; the
challenged statute makes no mention of pre-termination
notice. According to the deposition testimony of
Workers’ Compensation Referee Irvin Stander, medical
examination reports and other documentary materials
are not generally made available to the claimant until
after termination and, on occasion, not until the actual
post-termination hearing. Exhibit 61, at 7-12. Referee
Stander acknowledged that he was aware of hearings at
which ‘‘the claimant has never seen the report, he
doesn’t know what the report says, and he doesn’t know
what evaluation has been made of his disability ....’’ Id.
at 12.
The failure to give nagice distinguishes the supersedeas
provision from the Ponkéyivania non-evidentiary hearing
termination procedure for unemployment benefits upheld
in Ross v. Horn, 598 F.2d 1312 (3d Cir. 1979), cert.
denied, 448 U.S. 906 (1980). See also, Wilkinson v.
Abrams, 627 F.2d 650 (3d Cir. 1980); Basciano uv.
Herkimer, 605 F.2d 605 (2d Cir. 1978) (due process not
violated by New York disability retirement benefits
termination procedure because it gave notice to the
claimant and allowed him or her to present evidence
aT A Aa
79a
Opinion on Merits and Order for Submissions.
challenging the termination). Moreover, as the majority
opinion notes, the Supreme Court of Iowa struck down a
state summary termination procedure similar to the
challenged Pennsylvania statute for this precise failure
to provide pre-termination notice. Auxier v. Woodward
State Hospital-School, 266 N.W.2d 139 (1978) cert.
denied, 429 U.S. 830 (1979). Relying on Mathews, the
court in Auxier held:
[Djue process demands that, prior to termination of
workers compensation benefits, except where the
claimant has demonstrated recovery by returning to
work, he or she is entitled to a notice which, as a
minimum, requires the following:
(1) the contemplated termination,
(2) that the termination of benefits was to occur
at a specified time not less than 30 days after
notice,
(3) the reason or reasons for the termination,
(4) that the recipient had the opportunity to
submit any evidence of documents disputing or
contradicting the reasons given for termination, and,
if such evidence or documents are submitted, to be
advised whether termination is still contemplated,
(5) that the recipient had the right to petition for
review. ...
Id. at 142-43. Similarly, the West Virginia Supreme
Court of Appeals held that a _ state workmen’s
compensation termination must be preceded by written
notice, an opportunity for the claimant to furnish
relevant countervailing information, and an opportunity
80a
Opinion on Merits and Order for Submissions.
under the applicable state statute to an evidentiary
hearing upon timely protest to an adverse order. Mitchell
v. State Workmen’s Compensation Comm’r, 256 S.E.2d
1, 11-13 (1979). See also Carr v. SAIF Corp., 670 P.2d
1037, 1046 (Or. C.A. 1983) (in banc) (Oregon workers’
compensation termination requires preliminary notice of
proposed cessation and of the evidence upon which
termination is premised, as well as an opportunity to
respond); Steele v. North Dakota Workmen’s Comp.
Bureau, 273 N.W.2d 692, 700-701 & n.4 (S. Ct. N.D.
1978), (reliance on Mathews and Goldberg to require
notice, additional reliance on state law to require formal
hearing if any material fact is disputed). Cf. Laird v.
Workers’ Compensation Bd., 195 Cal. Rptr. 44 (Cal. C.A.
1983) (termination requires preliminary hearing).’
The second deficiency in the Pennsylvania
arrangement is that it provides no independent check by
state authorities on the termination certification by a
physician. Thus a physician employed by an insurance
carrier, to whom a disabled worker must periodically
report, may at any point certify that the disability has
ceased. As noted above, that certification alone
immediately terminates benefits under the supersedeas
provision. Although Mathews does not require a full
evidentiary hearing, the Supreme Court has nevertheless
observed, ‘“‘[o|rdinarily, due process of law requires an
? Other state systems which avoid the due process problems present
in no-notice procedure include those of Washington, see Herron v.
McClanahan, 625 P.2d 707 (Wash. App. 1981) (presentation of
documentary and deposition evidence to a jury), Florida see Wellcraft
Marine Corp. v. Turner, 435 So.2d 865 (Fla. App. 3 Dist. 1983)
(employer/carrier has burden of proof in any contested disability
termination proceeding), and Maine, see Merrifield v. Hannaford
Bros. Co., 409 A.2d 1313 (S. Ct. Me. 1980) (same).
8la
Opinion on Merits and Order for Submissions.
opportunity for ‘some kind of hearing’ prior to the
deprivation of a significant property interest.’’ Memphis
Light Gas & Water Div. v. Craft, 436 U.S. 1, 19 (1978).
See generaliy, Friendly, Some Kind of Hearing, 123 U.
Pa. L. Rev. iZ67 (1975). We need not set forth the
precise minimum safeguards that would protect a
termination not accompanied by an evidentiary hearing.
However, it bears comment that the technical, medical
testimony that insured reliability in Mathews was
followed by two tiers of independent state and federal
agency review prior to termination of benefits. In short,
the use of the unchecked recommendation of a physician
in the employ of an interested party to terminate a
benefit in which a recipient has a cognizable property
interest is at odds with the due process concepts set
forth in Mathews and Goldberg.
iV.
Because the Pennsylvania supersedeas proceeding
affords the affected party no notice and because it fails
to provide a mechanism for insuring the relative
reliability of its termination proceedings, the challenged
Pennsylvania statute must fall. The centrality of the
notice defect and the ins=fficient guarantee of
decisionmaker impartiality requires this Court to hold
that prospect of future settlement of the claim, even with
the payment of interest and an atorneys’ fee, does not
satisfy the constitutional requirements of due process.
Accordingly, I join in the result reached by the majority.
Judges Green and Pollak have authorized me to say
that they join in this statement.
2-2-84
Copy To:
(See Attached List)
|
82a
Opinion on Merits and Order for Submissions.
IN THE UNITED STATES DISTRICT COURT
For the Eastern District of Pennsylvania
Civil Action No. 76-429.
RICHARD BAKSALARY, WILLIAM JONES,
MORRIS TUCKER, and CHARLES SAMUEL
Individually and on behalf of all others similarly
situated,
Plaintiffs,
V.
PAUL J. SMITH, C. JOHN URLING, JR.,
WILLIAM J. SHEPPARD, GRACE M. SLOAN,
THE STATE WORKMEN’S INSURANCE FUND,
PENNSYLVANIA MANUFACTURERS’
ASSOCIATION INSURANCE COMPANY,
AMERICAN MUTUAL LIABILITY INSURANCE
COMPANY, THE SCHOOL DISTRICT OF
PHILADELPHIA, BITUMINOUS CASUALTY
CORPORATION, and all other insurance carriers
and/or self-insured employers similarly situated,
Defendants.
Filed February 1, 1984; MICHAEL E. KUNZ, Clerk.
By (Illegible) Dep. Clerk.
83a
Opinion on Merits and Order for Submissions.
ORDER
The parties are directed to submit, on or before
February 15, 1984, a proposed form of order, or, if they
cannot agree, alternative proposed forms of order,
implementing the holdings announced in the Opinion
filed today. The submission of such a proposed form of
order is without prejudice to the right of any of the
parties to appeal.
ARLIN M. ADAMS,
ADAMS, Circuit Judge
CLIFFORD S. GREEN (per LMP) ra
GREEN, District Judge
LOUIS H. POLLAK
POLLAK, District Judge
February 1, 1984
2-2-84
Copy To:
(See Attached List)
84a
Notice of Appeal—Circuit Court
U.S. DISTRICT COURT
Eastern District of Pennsylvania Philadelphia
(District/State) (Location)
U.S. TAX COURT[ ] CIRCUIT COURT ,
DOCKET NO.
(leave blank)
District Docket No. 76-429.
District Judges
Adams, Circuit Judge
(Sitting by Designation)
Green and Pollak
FULL CAPTION IN DISTRICT COURT AS FOLLOWS:
NiCHARD BAKSALARY, WILLIAM JONES,
MORRIS TUCKER, and CHARLES SAMUEL
Individually and on behalf of all others similarly
situated,
- Plaintiffs,
PAUL J. SMITH, C. JOHN URLING, JR.,
WILLIAM J. SHEPPARD, GRACE M. SLOAN,
THE STATE WORKMEN’S INSURANCE FUND,
PENNSYLVANIA MANUFACTURERS’
ASSOCIATION INSURANCE COMPANY,
AMERICAN MUTUAL LIABILITY INSURANCE
COMPANY, THE SCHOOL DISTRICT OF
PHILADELPHIA, BITUMINOUS CASUALTY
CORPORATION, and all other insurance carriers
and/or self-insured employers similarly situated,
Defendants.
Filed August 29, 1984; MICHAEL E. KUNZ, Clerk.
By (Illegible) Dep. Clerk.
85a
Notice of Appeal—Circuit Court.
NOTICE OF APPEAL
TO
U. S. COURT OF APPEALS, THIRD CIRCUIT
Notice is hereby given that Allstate Ins. Company,
Harleysville Mut. Ins. Co., Ohio Casualty Group of Ins.
Cos., Royal Ins. Co., Sun Company, Travelers Ins. Co.
and Wausau Ins. Cos. objecting members of defendant
class above (Party) named hereby appeal to the United
States Court of Appeals for the Third Circuit from
[ ] Judgment
[x ] Order
{ ] Other (Specify)
entered in this action on (Date) July 31, 1984 as amended
by Order entered August 13, 1984.
DATED: August 29, 1984
i.
R. D. HARBURG
(Counsel for Appellant-Signature)
R. D. Harburg, Esquire
(Name of Counsel-Typed)
Swartz, Campbell & Detweiler
1700 Land Title Bidg.,
Philadelphia, Pa. 19107
(Address)
(215) 564-5190
(Tel. No.—U.S. Gov’t. FTS or Other)
Notice of Appeal—Circuit Court.
Harold Goodman, Esquire
(Counsel for Appellee)
Community Legal Services
Sylvania House
Juniper & Market Streets
Philadelphia, Pa. 19110
(Address)
(215) 893-5300
(Tel. No.—U.S. Gov't. FTS or Other)
NOTE: USE ADDITIONAL SHEETS if all appellants
and/or all counsel for appellees cannot be listed on the
notice of appeal sheet.
Robert T. Lear, Esquire
School Dist. of Phila., Law Dept.
Parkway at 21st Street
Philadelphia, PA 19102
Joseph R. Thompson, Esq.
620 Public Ledger Bldg.
Philadelphia, PA 19106
Benjamin Cherry, Esq.
707 Architects Bldg.
117S. 17th Street
Philadelphia, PA 19102
William C. Steppacher, Esq.
100 Lackawanna Avenue
Scranton, PA 18508
David Rudovsky, Esquire
1427 Walnut Street
Philadelphia, PA 19102
Lowell A. Reed, Jr., Esq.
Rawle & Henderson
211 S. Broad Street
Philadelphia, PA 19107
Christopher J. Pakuris, Esq.
925 Chestnut Street
Philadelphia, PA 19107
Brian R. Steiner, Esq.
Suite 1-C-44,
The Philadelphian
2401 Pennsylvania Avenue
Philadelphia, PA 19130
Rita L. Bernstein, Esquire
112 South 16th Street
Suite 1012
Philadelphia, PA 19102
Debra K. Wallet, Esquire
15th Flr, Strawberry Square
Harrisburg, PA 17120
Robert G. Hanna, Jr., Esq.
1515 Locust Street
Philadelphia, PA 19102
Allen C. Warshaw, Esq.
Deputy Attorney General
Dept. of Justice Capital Annex
Harrisburg, PA 17120
87a
Notice of Appeal—Supreme Court
SWARTZ, CAMPBELL & DETWEILER
BY: R. D. Harburg, Esquire
Identification No. 03966
17th Floor, Land Title Building
Philadelphia, Pa. 19110
(215) 564-5190
Attorney For Appellants/Objecting Members
of Defendant Class
UNITED STATES DISTRICT COURT
For the Eastern District of Pennsylvania
Civil Action No. 76-429.
RICHARD BAKSALARY, WILLIAM JONES,
MORRIS TUCKER and CHARLES SAMUEL,
Individually and on behalf of all others similarly
situated,
Plaintiffs,
Vv.
PAUL J. SMITH, C. JOHN URLING, JR.,
WILLIAM SHEPPARD, GRACE M. SLOAN,
THE STATE WORKMEN’S INSURANCE FUND,
PENNSYLVANIA MANUFACTURERS’
ASSOCIATION INSURANCE COMPANY,
AMERICAN MUTUAL LIABILITY INSURANCE
COMPANY, THE SCHOOL DISTRICT OF
PHILADELPHIA, BITUMINOUS CASUALTY
CORPORATION, and all other insurance carriers
and/or self-insured employers similarly situated,
Defendants.
Filed September 20, 1984; MICHAEL E. KUNZ, Clerk.
By Dep. Clerk.
88a
Notice of Appeal—Supreme Court. |
NOTICE OF APPEAL TO THE SUPREME COURT
OF THE UNITED STATES
Notice is hereby given that Allstate Insurance
Company, Argonaut Insurance Company, Harleysville
Mutual Ins. Company, Ohio Casualty Group of Ins.
Companies, Royal Insurance Company, Sun Company,
Inc., Travelers Ins. Company and Wausau Ins.
Companies hereby appeal to the Supreme Court of the
United States from the Order entered in this action on
July 31, 1984, as amended by Order entered August 13,
1984.
This appeal is taken pursuant to 28 U.S.C. §1253.
RICHARD D. HARBURG
Counsel for Appellants/Objecting
Members of Defendant Class
R. D.-Harburg, Esquire
Swartz, Campbell & Detweiler, Esquires
1700 Land ‘title Bldg.
100 S. Broad Street
Philadelphia, Pa. 19110
(215) 564-5190
September 20, 1984
89a
Notice of Appeal—Supreme Court.
SWARTZ, CAMPBELL & DETWEILER
BY: R. D. Harburg, Esquire
Identification No. 03966
17th Floor, Land Title Building
Philadelphia, Pa. 19110
(215) 564-5190
Attorney For Appellants/Objecting Members
of Defendant Class
Civil Action No. 76-429.
RICHARD BAKSALARY et al,
Plaintiffs,
Vv.
PAUL J. SMITH, et al.,
Defendants.
CERTIFICATE OF SERVICE
I, R. D. HARBURG, Esquire, being a member of the
Bar of the United States Supreme Court, and as counsel
for appellants/objecting members of defendant class,
hereby certify that a true and correct copy of the
foregoing Notice of Appeal has been served by First
Class, U. S. Mail, Postage Prepaid, on all counsel for
parties, who signed Consent Decree, as follows:
90a
Notice of Appeal—Supreme Court.
Harold I. Goodman, Esquire William C. Steppacher, Esquire,
Sylvania House 100 Lackawanna Avenue,
Juniper & Locust Streets Scranton, Pa. 18508
Phila., Pa. 19107 ie,
Debra K. Wallet, Esquire Joseph R. Thompson, Esquire,
Allen C. Warshaw, Esquire 410 Public Ledger Bldg.,
Office of the Attorney General Phila., Pa. 19106
1521 Strawberry Square
Harrisburg, Pa. 17120
Lowell A. Reed, Jr., Esquire,
211 S. Broad St.,
Phila., Pa. 19107
Christopher J. Pakuris, Esquire
925 Chestnut St.,
Phil., Pa. 19107
Robert J. Hanna, Esquire
1515 Locust Street,
Phila., Pa. 19102
Michael Churchill, Esquire
Robert Nuttall, Esquire
School District of Phila.,
21st & Parkway,
Phila., Pa. 19102
RICHARD D. HARBURG
R.D. HARBURG
Swartz, Campbell & Detweiler
Counsel for Appellants
September 20, 1984
9la
Memorandum and Interim Order
IN THE UNITED STATES DISTRICT COURT
For the Eastern District of Pennsylvania
Civil Action No. 76-429.
RICHARD BAKSALARY, WILLIAM JONES,
MORRIS TUCKER, and CHARLES SAMUEL
Individually and on behalf of all others similarly
situated,
Plaintiffs,
v.
PAUL J. SMITH, C. JOHN URLING, JR.,
WILLIAM J. SHEPPARD, GRACE M. SLOAN,
THE STATE WORKMEN’S INSURANCE FUND,
PENNSYLVANIA MANUFACTURERS’
ASSOCIATION INSURANCE COMPANY,
AMERICAN MUTUAL LIABILITY INSURANCE
COMPANY, THE SCHOOL DISTRICT OF
PHILADELPHIA, BITUMINOUS CASUALTY
CORPORATION, and all other insurance carriers
and/or self-insured employers similarly situated,
Defendants.
Filed March 15, 1984; MICHAEL E. KUNZ, Clerk.
By (Illegible) Dep. Clerk.
Before: ADAMS, Circuit Judge, *
GREEN and POLLAK, District Judges.
* Honorable Arlin M. Adams, United States Circuit Judge, United
States Court of Appeals for the Third Circuit, sitting by designation.
92a
Memorandum and Interim Order.
MEMORANDUM
Pollak, District Judge March 15, 1984
On February 1, 1984, this court filed two Opinions
disposing of the constitutional contentions in this case.
All three judges of this court agreed that the invocation
of the procedure authorized by the first sentence of
section 413(a) of the Pennsylvania Workmen’s
Compensation Act (‘‘the automatic supersedeas
provision’’), Pa. Stat. Ann. tit. 77, $774 (Purdon Supp.
1982), to terminate an _ individual’s worker’s
compensation benefits without prior notice or a
pretermination opportunity to be heard violates the Due
Process Clause of the Fourteenth Amendment. Because,
in briefing the merits of this case, the parties had not
addressed the question of appropriate relief in sufficient
depth to permit this court to frame the order at the time
the Opinions were filed, the court directed the parties to
submit, no later than February 15, a ioint form of order.
In the event the parties could not agree, the parties were
to submit alternative forms of order.
On February 15, the date set for submission of the
remedial requests, the court received a proposed order
from plaintiffs, another from defendants Smith, Urling,
Sheppard, and Sloan (“‘the Commonwealth Defendants’’),
two others from defendant State Workmen’s Insurance
Fund (‘“‘SWIF’’), and four more from defendants School
District of Philadelphia, Bituminous Casualty
Corporation, Pennsylvania Manufacturers’ Association
Insurance Company, Liberty Mutual Insurance
Company, and American Mutual Liability Insurance
Company. The parties then submitted initial briefs in
support of their respective proposed forms of order on
March 6 and reply briefs on March 12. Bituminous
93a
Memorandum and Interim Order.
Casualty Corporation’s reply brief included a fifth
proposed form of order. The School District of
Philadelphia has requested an extension of time to file a
brief. Several parties have requested oral argument on
the pending remedial issues.
Some of the remedial issues presented by the parties’
submissions would benefit from development at oral
argument. Other issues are sufficiently dealt with in the
materials already submitted so that argument seems
unnecessary. Accordingly, the accompanying Order
schedules argument for a date certain—March 28, at 9:30
a.m.—and also disposes today of certain issues which, in
our judgment, do not warrant oral argument.
(1) Declaratory Relief
All parties agree that this court’s Opinions of February
1 require, at a minimum, that this court enter an Order
granting declaratory relief. In their proposed forms of
order, several defendants requested that this court’s
order not take effect for some period following its filing.
No defendant has pressed this request in its brief. We do
not believe that any party requires further notice of the
automatic supersedeas provision’s invalidity. This
court’s February 1 Opinions clearly and _ repeatedly
stated our view that the automatic supersedeas provision
was unconstitutional. The parties have had notice of
those Opinions for over one month. Accordingly, the
accompanying Order declares that any future invocation
of the automatic supersedeas provision of the Workmen’s
Compensation Act violates the Due Process Clause of
the Fourteenth Amendment. This declaration does not
purport to resolve, one way or another, questions as to
the validity of invocations of the automatic supersedeas
provision between February 1 and today.
94a
Memorandum and Interim Order.
Several defendants have expressed concern that the
court’s relief not affect any provision other than the
automatic supersedeas provision of section 413(a). In
particular, Bituminous Casualty Corporation requests
that this court expressly affirm the validity of the
benefit suspension procedure sanctioned by section
413(c), Pa. Stat. Ann. tit. 77, $774.2 (Purdon Supp. 1982).
Memorandum of Defendant, Bituminous Casualty
Corporation at 19-21. ‘
Throughout this litigation the parties have addressed
themselves to the constitutionality of the invocation of
the following provision of section 413(a) of the
Pennsylvania Workmen’s Compensation Act:
The filing of a petition to terminate or modify a
notice of compensation payable or a compensation
agreement or award as provided in this section shall
operate as a supersedeas, and shall suspend the
payment of compensation fixed in the agreement or
by the award, in whole or to such extent as the facts
alleged in the petition would, if proved, require only
when such petition alleges that the employe has
returned to work at his prior or increased earnings
or where the petition alleges that the employe has
fully recovered and is accompanied by an affidavit
of a physician on a form prescribed by the
department to that effect which is based upon an
examination made within fifteen days of the filing of
the petition.
Pa. Stat. Ann. tit. 77, §774 (Purdon Supp. 1982). We
have called this first sentence of section 413(a) the
automatic supersedeas provision.
Any relief granted in this case pertains only to the
operation of the automatic supersedeas provision. The
parties have not heretofore directly addressed the
Pn
il
95a
Memorandum and Interim Order.
constitutional validity of any other provision of the Act,
and resolution of the merits of this case has not called
any other provision of the Act into question.
Accordingly, we will not declare the suspension
procedure of section 413(c) valid nor will we declare it
invalid.
(2) Prospective Injunctive Relief
Plaintiffs have requested that this court enjoin any
future invocations of the automatic supersedeas
provision. Plaintiffs further request that this court order
the Bureau of Worker’s Compensation to notify all
plaintiffs and defendants of any injunction entered.
The Commonwealth Defendants oppose any injunctive
relief. They argue that declaratory relief will suffice to
preclude future invocations of the automatic supersedeas
provision because the Workmen’s Compensation Act
provides procedures to enforce an obligation to pay
continued benefits. Further, the Commonwealth
Defendants contend that principles of comity require this
court to allow the Bureau to use those enforcement
procedures against employers and insurers who
improperly terminate compensation benefits; the
Commonwealth Defendants argue that this federal court
should limit itself to declaring constitutional
entitlements and not intrude upon the operation of a
state program.
On the other hand, the private insurance company
defendants and the School District of Philadelphia have
proposed several forms of injunctive relief mandating
that the state adopt, in substitution for the automatic
supersedeas, certain procedures which the private
insurers and the School District believe satisfy
constitutional constraints. Plaintiffs, SWIF and the
Commonwealth Defendants oppose any such order.
96a
Memorandum and Interim Order.
We believe that both plaintiffs’ request for injunctive
relief running against the private defendants, SWIF,
and/or the Commonwealth Defendants, and _ the
Commonwealth Defendants’ comity argument against
such relief deserve further development at oral
argument. Further, in the event that we conclude that a
decree enjoining continued invocation of the automatic
supersedeas is appropriate, plaintiffs’ request for some
form of notice to members of the defendant and plaintiff
classes may have some merit. However, we see no
circumstances under which we would grant injunctive
relief mandating adoption of a procedure of our selection
to replace the automatic supersedeas provision. A federal
court cannot enact state law. Further, we do not read the
Workmen’s Compensation Act to require adoption of any
of the proposed alternative procedures. Accordingly, this
court will not hear argument in support of Proposed
Order Number 1, 445-8, 10-13, of Defendants, School
District of Philadelphia, Bituminous Casualty
Corporation, Pennsylvania Manufacturers’ Association
Insurance Company, Liberty Mutual Insurance Company
and American Mutual Liability Insurance Company;
Proposed Order Number 2, 448-11, 13-14; Proposed Order
Number 3, 448-11, 13-16; or Proposed Order Number 5,
pp. 3-5.
(3) Retrospective Relief
The parties disagree sharply over whether this court
should enter any Order which applies to invocations of
the automatic supersedeas provision before the date of
the Order. We wish to hear argument on this issue. We
note in this connection that no party seeks relief on
behalf of a person against whom a defendant invoked the
automatic supersedeas provision before February 1,
1984, in a termination petition that was no longer
97a
Memorandum and Interim Order.
pending before the Bureau of Worker’s Compensation or
any other tribunal on that date. Accordingly, this court
does not anticipate that any form of retrospective relief
fashioned by this court would award anything to persons
in that category.
(4) The School District’s Request foran Extension
This court is of the view that all parties will benefit
from resolution of remedial issues, particularly
prospective remedial issues, as quickly as possible. With
that in mind, and believing that all parties have had
adequate time to brief the issues, the court will not delay
disposition of those issues it has determined are now ripe
for resolution in order to accommodate the School
District of Philadelphia's request for additional time. As
to the issues to be considered at oral argument on March
28, the School District will be given leave to file a
memorandum no later than March 19.
3/16/84
Copy To:
(See Attached List)
"
98a
Memorandum and Interim Order.
IN THE UNITED STATES DISTRICT COURT
For the Eastern District of Pennsylvania
Civil Action No. 76-429.
RICHARD BAKSALARY, WILLIAM JONES,
MORRIS TUCKER, and CHARLES SAMUEL
Individually and on behalf of all others similarly
situated,
Plaintiffs,
V.
PAUL J. SMITH, C. JOHN URLING, JR.,
WILLIAM J. SHEPPARD, GRACE M. SLOAN,
THE STATE WORKMEN’S INSURANCE FUND,
PENNSYLVANIA MANUFACTURERS’
ASSOCIATION INSURANCE COMPANY,
AMERICAN MUTUAL LIABILITY INSURANCE
COMPANY, THE SCHOOL DISTRICT OF
PHILADELPHIA, BITUMINOUS CASUALTY
CORPORATION, and all other insurance carriers
and/or self-insured employers similarly situated,
Defendants.
Filed March 15, 1984; MICHAEL E. KUNZ, Clerk.
By (Illegible) Dep. Clerk.
A Ph ls ES SE EEA,
——ooOorOr aes
99a
Memorandum and Interim Order.
ORDER
Upon consideration of the written submissions of the
parties and for the reasons stated in the accompanying
Memorandum and this court’s Opinions of February 1,
1984:
(1) (a) For purposes of this Order, the term
‘automatic supersedeas provision”’ shall refer to the first
sentence of section 413(a) of the Pennsylvania
Workmen’s Compensation Act, codified as the first
sentence of Pa. Stat. Ann. tit. 77, §774 (Purdon Supp.
1982).
(b) The automatic supersedeas provision of the
Pennsylvania Workmen’s Compensation Act authorizes a
procedure which viol
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