No. 89-91 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

CHAMPION INTERNATIONAL CORPORATION, 

Petitioner and Respondent, 

-vsH. L. McCHESNEY, 

Respondent and Appellant. 

APPEAL FROM: The Workers' Compensation Co-urt, The Honorable 

Timothy Reardon, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

H. L. McChesney; McChesney, Grenfell & Ogg, Missoula 

Montana 

For Respondent: 

Bradley J. Luck; Garlington, Lohn & Robinson, Missoula, 

Montana 

Submitted on briefs: Auq. 10, 1989 

Filed: 

Decided: September 21, 1989 0 
Justice Fred J. Weber delivered the Opinion of the Court. 

Mr. McChesney appeals from an order of the Workers' 

Compensation Court, ordering him to reimburse Champion International Corporation (Champion) for an overpayment of attorney fees. Mr. McChesney appeals this order. We affirm. 

The issue presented for our review is restated as 

follows: 

Did the Workers' Compensation Court err in ordering 

repayment of attorney fees to the insurer where claimant 

received an overpayment of benefits, and attorney fees were 

based on a percentage of benefits received by the claimant? 

Mr. McChesney undertook legal representation of a workers' compensation claimant, Mr. Keith Eastman, on October 6, 

1982. Mr. Eastman had suffered an injury to his knee on 

March 20, 1981, while working for Champion International 

Corporation, a self-insured employer under Plan 1 of the 

Workers' Compensation Act. Mr. McChesney and Mr. Eastman 

signed a fee arrangement whereby Mr. McChesney would receive 

33% of benefits in the event the case necessitated a hearing 

before the Workers' Compensation Court. 

At the time of injury, Champion, the insurer, began 

payment of temporary total benefits and medical benefits. In 

March 1982 claimant's temporary total benefits were reduced 

to permanent partial. This reduction was based partly on 

claimant's refusal to have surgery on his knee. Claimant 

disputed the reduction and a hearing resulted in a judgment 

in claimant's favor on May 7, 1984. This judgment allowed 

Mr. McChesney to obtain attorney fees pursuant to 5 

39-71-611, MCA, which, according to the fee arrangement, was 

a net award of 33% of the benefits. Mr. McChesney was awarded a lump sum amount of attorney fees for the back-payment of 

temporary total benefits. From the date of the order 
forward, Mr. McChesney received one-third the amount of each 

biweekly check sent to Mr. Eastman. 

At the hearing on May 7, 1984, the medical evidence 

indicated that the claimant should have knee surgery; however, claimant had previously refused to have the surgery. The 

judgment of May 7 specifically ordered claimant to submit to 

a physical examination to determine whether knee surgery 

sho.uld be performed and to notify the court whether he was 

willing to have the surgery performed. 

At a hearing in July 1984 regarding new medical evidence, claimant agreed to have the knee surgery performed and 

to schedule it immediately. The Workers' Compensation Court 

ordered payment of total disability benefits until after the 

surgery and after consideration of claimant's post-surgery 

condition. The order further noted that if claimant did not 

have the surgery the insurer was entitled to a credit for 

benefits paid after maximum healing. 

On August 9, 1984, claimant refused to have knee surgery. A year and a half later the case was reopened by the 

insurer. At the hearing on the petition the court found that 

claimant had reached maximum healing in January of 1984, but 

that his entitlement to total disability benefits ended on 

August 9, 1984, the date that he refused to have surgery. In 

an order dated April 1, 1987, Mr. Eastman was granted 200 

weeks of partial disability payments, offset against the 

total disability payments he had received after August 9, 

1984. The net result of this order was that the claimant had 

been overpaid $7446.00. Mr. Eastman was ordered to repay 

this amount to the insurer, Champion. 

On October 27, 1988, Champion filed a petition with the 

Workers' Compensation Court, seeking to recover the attorney 

fees paid to Mr. McChesney, which had been based on the 

overpayment to Mr. Eastman of $7446.00. Mr. McChesney had 
received checks totalling one-third of this amount, or 

$2,479.51. The Workers' Compensation Court ordered Mr. 

McChesney to repay this amount to Champion. 

Mr. McChesney argues that res judicata bars the Workers' 

Compensation Court from ordering repayment at this point. He 

contends that the order of April 1, 1987, directing the 

claimant to repay benefits, did not mention a repayment of 

attorney fees. He contends that the employer should have 

asserted the issue of reimbursement of attorney fees at that 

point, rather than a year and a half later. 

Initially, we conclude that the present action is not 

barred by res judicata in that the elements of that defense 

are not satisfied. In Phelan v. Lee Blaine Enterprises 

(1986), 220 Mont. 296, 299, 716 P.2d 601, 603, we set out the 

elements of res judicata as follows: 

(1) the parties or their privies must be the same; 

(2) the subject-matter of the action must be the 

same; (3) the issues must be the same, and must 

relate to the same subject-matter; and (4) the 

capacities of the persons must be the same in 

reference to the subject-matter and to the issues 

between them. 

We conclude that the Workers' Compensation Court was 

correct in holding that the action is not barred by res 

judicata. The subject matter and the issues in the two 

actions are not the same. The first suit involved the entitlement to disability benefits and the amount of such benefits. The second suit involved the entitlement to attornev 

fees. Different theories and considerations apply to each. 

In Phelan, we stated: 

[Ulnless it clearly appears that the precise question involved in the second case was raised and 

determined in the former, the judgment is no bar to 

the second action. 
Phelan, 716 P.2d at 603. We conclude that the April 1, 1987 

order is not a bar to the present action. 

We further conclude that the Workers' Compensation Court 

was correct in ordering the repayment of attorney fees. Mr. 

McChesneyts fees were based solely on a percentage of benefits paid to his client. On May 7, 1984 temporary total 

benefits were awarded to Mr. Eastman contingent upon his 

agreement to have surgery on his knee. It was specifically 

stated in the order that the insurer would be credited any 

overpayment if claimant failed to comply. Although Mr. 

Eastman represented to the court in July of 1984 that he 

would undergo surgery, he never did have the knee surgery 

performed. Clearly the insurer was entitled to a credit. 

Logically it follows that the attorney fees which were based 

on the overpayment must also be returned. While it is unfortunate that claimant did not meet the conditions for his 

total disability award, the attorney was aware of the conditions attached to the benefits, and the possibility that some 

benefits might have to be reimbursed to the insurer. 

The facts of the present case are analogous to 

Transamerica Ins. Group. v. Adams (0r.App. 1983), 661 P.2d 

937. In that case a workerst compensation claimant settled 

with the insurer. The attorney was entitled to 25% of the 

settlement, which he received. The settlement however, was 

subject to administrative review, and the attorney was aware 

of this condition. When the Workerst Compensation Board 

invalidated the settlement, both the claimant and the attorney were required to return the amounts each had received. 

Similarly, in the present case, Mr. McChesney was aware that 

the insurer was due a credit in the event that certain conditions were not met. His fees, based as they were, on benefits received by the claimant, must be reimbursed. We 

conclude that the Workers' Compensation Court did not err in 
ordering a repayment of attorney fees. We affirm the holding 

of the Workers' Compensation Court.