No. 89-91
IN THE SUPREME COURTOF THE STATEOF MONTANA

CHAMPION INTERNATIONAL CORPORATION, Petitionerand Respondent,-vsH. L. McCHESNEY, Respondent and Appellant.

APPEAL FROM: TheWorkers' Compensation Co-urt, The Honorable Timothy Reardon,Judgepresiding.

COUNSEL OF RECORD:
ForAppellant:
H. L. McChesney; McChesney, Grenfell & Ogg,Missoula Montana
For Respondent: Bradley J. Luck;Garlington,Lohn & Robinson, Missoula, Montana

Submitted onbriefs: Auq. 10, 1989

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

Mr. McChesney appeals from an order of the Workers' CompensationCourt,orderinghim toreimburse Champion International Corporation (Champion) for an overpaymentof 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 aworkers' 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 theWorkers' CompensationCourt. At the time of injury, Champion, the insurer, began payment of temporary totalbenefits andmedicalbenefits. 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 thebenefits. Mr. McChesneywas awarded a lump sum amount of attorney fees for theback-payment of temporary total benefits. From the date of the orderforward,Mr. McChesney received one-third the amount of each biweekly check sent toMr. Eastman. At the hearing on May 7, 1984, the medical evidence indicated that the claimant should have knee surgery; however,claimanthad previously refused tohave the surgery. The judgment of May 7 specifically ordered claimant to submit to
a physical examination to determine whether knee surgery sho.uldbe performed and to notify the court whether he was willing tohave the surgeryperformed. At a hearing in July 1984 regarding new medical evidence,claimant agreed tohave 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 claimantdid not have the surgery the insurer was entitled to a credit for benefitspaid aftermaximum 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 thehearing on thepetition 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 thathe refused tohave 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 orderwas that the claimanthad 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 hadreceived 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 judicatabars the Workers' Compensation Court from ordering repayment at thispoint. 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 ahalf 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 theirpriviesmust 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:
[Ulnlessit 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 theApril 1, 1987 order is not abar to thepresent action. We further conclude that theWorkers' Compensation Court
was correct in ordering the repayment of attorney fees. Mr. McChesneytsfees 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. Itwas 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 feeswhich were based
on the overpaymentmust alsobe returned. While it isunfortunate that claimant did not meet the conditions for his total disability award, the attorneywas aware of the conditions attached to the benefits, and the possibility that some benefits might have tobe 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 workerstcompensation claimant settled with the insurer. The attorney was entitled to 25% of the settlement, which he received. The settlementhowever,was subject to administrative review, and the attorneywas 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 certainconditions were notmet. His fees,based as they were, on benefits received by the claimant, must be reimbursed. We conclude that the Workers' CompensationCourtdid not err inordering a repayment of attorney fees. We affirm theholding of theWorkers' Compensation Court.