No. 87-545 

IN THE SUPR.EME COURT OF THE STATE OF MONTANA 

1988 

HOAGY CARMICHAEL, 

Relator, 

-vsTHE WORKERS' COMPENSATION COURT OF 

THE STATE OF MONTANA, THE HONORABLE 

TIMOTHY REARDON, PRESIDING and ARC0 

METALS, IFlC. , 

Respondents. 

ORIGINAL PROCEEDING: 

COUNSEL OF RECORD: 

For Relator: 

Bothe & Lauridsen; Laurie Wallace argued, Columbia 

Falls, Montana 

For Respondent : 

prray, Kaufman, Vidal & Gordon; James Ramlow argued, 

*.alispell, Montana c: 

3 - 

.. .. CC;, *. - 4./L I7 - - Filed: o . - L . 

Submitted: September 1, 1988 

Decided: November 1, 1988 

Clerk 
Mr. Justice John Conway Harrison delivered the Opinion of the 

Court. 

Hoagy Carmichael petitioned this Court for a writ of 

supervisory control challenging the 1987 amendments to the 

Workers' Compensation Act concerning dispute resolution and 

mediation, $5 39-71-2401 and -2406 through -2411, MCA. We 

granted the writ for the purpose of determining whether these 

statutes are constitutional as applied to cases where the 

injury occurred before the effective date of the amendment, 

but no petition was filed with the Workers' Compensation 

Court until after that date. We find such a retroactive 

application unconstitutionally impairs a contractual 

obligation. 

Hoagy Carmichael was injured on August 8, 1985, while 

working in the course and scope of his employment with the 

respondent, Arco Metals, Incorporated (Arco) . Arco is a 

self insured employer and accepted Carmichael's compensation 

claim. Arco commenced the payment of benefits, but 

subsequently notified Carmichael in a letter dated July 24, 

1987, that the benefits would be reduced from temporary total 

disability to permanent partial disability. In response, on 

August 3, 1987, Carmichael filed a petition for an emergency 

hearing before the Workers' Compensation Court. In his 

petition, Carmichael stated that due to his disability he was 

unable to return to work and he had no means of support for 

his family other than his workers' compensation benefits. 

On September 15, 1987, Arco filed a motion to dismiss 

Carmichael's claim based on § 39-71-2408, MCA, which requires 

both parties to submit to nonbinding mediation regarding any 

issue concerning benefits before either party may file a 

petition in the Workers' Compensation Court. Section 
39-71-2408, MCA, became effective July 1, 1987 and is part of 

a group of statutes added to the Montana Workers' 

Compensation Laws by the 1987 Montana Legislature providing 

for mandatory nonbinding mediation. Sections 39-71-2401 and 

-2406 through -2411, MCA. Carmichael resisted the motion 

claiming the retroactive mandatory mediation deprived him of 

procedural due process and the right to a speedy remedy for 

his injury. 

In an opinion filed November 20, 1987, the Workers' 

Compensation Court determined the retroactive application of 

the mandatory mediation process did not violate claimant's 

constitutional rights. The court recognized the mediation 

may result in some delay, but the delay was not so 

substantial as to render the process unconstitutional. While 

noting the mandatory mediation may cause some hardship, the 

court also rejected Carmichael's due process argument. 

However, the court did review the Administrative Rules which 

elaborate on the implementation of the mandatory mediation, 

allowing a maximum of 100 days to complete the mediation 

process, and concluded this maximum time period must not 

exceed 49 days. The court adopted the 49-day time period 

based on S 39-71-610, MCA, permitting the Division upon 

petition and at the Division's discretion, to extend benefits 

for 49 days after the termination of benefits. By making 

this modification, the court hoped to relieve some of the 

potential hardship caused by delays during mediation. The 

court granted the defendant's motion to dismiss and ordered 

the mediation process be completed within 49 days. 

On December 16, 1987, Carmichael filed an application 

for a writ of supervisory control. On February 8, 1988, this 

Court granted the writ and decided to hear the following 

issue: 
Whether the 1987 amendments to the Workers' 

Compensation Act concerning dispute resolution and mediation, 

5s 39-71-2401 and -2406 through -2411, MCA, apply, and if so, 

are constitutional as applied, to cases in which the injury 

occurred before July 1, 1987, but no petition was filed with 

the Workers1 Compensation Court until after that date. 

Both parties hold the position that the mediation 

statutes, as written, apply to the facts of this case. The 

relator, Carmichael, chose to divide the remaining 

constitutional issue into four sub-issues: 

Do the mandatory, nonbinding mediation requirements of 

§ 39-71-2401 et seq., MCA, unconstitutionally: 

1. impair the obligation of contracts as between 

Workers1 Compensation insurers and those injured workers 

receiving benefits prior to July 1, 1987; 

2. violate the due process clause of the Federal and 

State Constitutions as applied to termination-of-benefits 

disputes ; 

3. deprive Workers1 Compensation claimants of the 

remedy to petition the Workers1 Compensation Court for a 

49-day extension of benefits when those benefits are 

disputed; 

4. deny Workers1 Compensation claimants of a speedy 

remedy for an injury to a vested property right? 

Because we determine the nonbinding mediation 

requirements unconstitutionally impair a contractual 

obligation when applied to the facts of this case, we need 

not go beyond an analysis of the first issue. 

Generally, Carmichael's argument is based on the fact 

that his injury occurred prior to the time the legislature 

enacted the nonbinding mediation requirements. The enactment 

applies to all injured workers regardless of the date of 
injury. 1987 Mont. Laws 464, Section 72. Carmichael argues 

the retroactive change results in a significant procedural 

delay substantially impairing his contractual rights. 

"This Court has assumed for a number of years that the 

Workers' Compensation statutes in effect on the date of 

injury set the contractual rights between the parties." 

Buckman v. Montana Deaconess Hosp. (Mont. 1986), 730 P.2d. 

380, 384, 43 St.R.ep. 2216, 2222 (citing Trusty v. 

Consolidated Freightways (Mont. 1984), 681 P.2d 1085, 1087, 

41 St-.Rep. 973, 975). Both the United States and Montana 

Constitutions prohibit state laws impairing the obligation of 

a contract. Art I, Sec. 10, U.S.Const; and Art. 11, Sec. 31, 

Mont.Const. Carmichael recognizes this prohibition is not 

absolute, but contends there has been a substantial 

impairment of a contractual right within the meaning of the 

United States and Montana Constitutions under the facts of 

this case. Carmichael argues that following his injury and 

after his benefits began, he obtained a vested contractual 

and property right. After this right vested and prior to 

July 1, 1987, he had the right to directly petition the 

Workers' Compensation Court if his benefits ceased. The 

mandatory mediation statutes retroactively altered this right 

to directly petition the Workers' Compensation Court. 

Carmichael concludes since the mediation may result in a 

substantial delay causing him a significant hardship, the new 

mediation procedure is a substantial impairment of his vested 

contractual right. 

Arco agrees that Carmichael has a contractual right 

which vested at the time of his injury and that his benefits 

cannot be subsequently altered by legislation. E.g. f 

Buckman, 730 P.2d at 384-85, 43 St.Rep. at 2222. However, 

Arco states Carmichael is confusing his contractual right to 
workers' compensation benefits with an alleged right to 

uninterrupted payments in all circumstances. Arco argues the 

legislature has implemented a procedural change to encourage 

settlements and reduce the caseload of the Workers' 

Compensation Court. Arco concludes this is merely a 

modification of the system for determining the eligibility 

for benefits, and in no way alters the benefits to which 

Carmichael may or may not be entitled. 

In analyzing a contract clause challenge, this Court 

has often implemented a three-tiered analysis set forth by 

the United States Supreme Court in Energy Reserves Group, 

Jnc. 17. Kansas Power and TJight Co. 11983), 459 1J.S. 400, 103 

S.Ct. 697, 74 L.Ed.2d 569: (1) Is the state law a 

substantial impairment to the contractual relationship? (2) 

Does the state have a significant and legitimate purpose for 

the law? (3) Does the law impose reasonable conditions which 

are reasonably related to achieving the legitimate and public 

purpose? See, Neel v. First Federal Sav. and Loan Assoc. 

(1984), 207 Mont. 376, 392, 675 P.2d 96, 104-105. See also, 

Buckman, 730 P.2d at 385, 43 St.Rep. at 2007. Although this 

Court clearly recognizes that our state constitution provides 

rights and protections separate from those afforded by the 

federal constitution, " [wl e have generally interpreted the 

contract clauses found in Art. 11, S 31, 1972 Mont. Const. 

and Art. I, S 10 (I), United States Constitution as 

interchangeable guarantees against legislation impairing the 

obligation of contracts." Buckman, 730 P.2d at 384, 43 

St.Rep. at 2221, (citing Neel, 675 P.2d at 103, 41 St.Rep. at 

25) . In analyzing this issue, we will implement the 

three-tiered analysis stated above. 

The initial inquiry therefore, is whether the mandatory 

mediation statutes operate as a substantial impairment of the 
contractual relationship between workers' compensation 

insurers and workers injured prior to July 1, 1987. If the 

answer is no, there need be no further inquiry. "Total 

destruction of contractual expectations is not necessary, and 

a law which restricts a party to gains reasonably expected 

from a contract is not a substantial impairment." Neel, 207 

Mont. at 392, 675 P.2d at 105. Prior to the passage of the 

mediation statutes, an injured worker had the right to 

directly petition the Workers' Compensation Court to resolve 

disputes concerning benefits under the Workers' Compensation 

Act. Section 39-71-2905, MCA, (1985) . As previously noted, 

the mandatory nonbinding mediation process must now be 

satisfied prior to filing such a petition. Section 

39-71-2908, MCA, (1987) . In the opinion filed by the 

Workers' Compensation Court, it was noted that the mediation 

may result in a delay of 100 days. With the exception of his 

workers' compensation benefits, the record indicates 

Carmichael is without financial resources to support his 

family. The delay presented by the current mediation 

statutes is an additional delay not existing on the date 

Carmichael was injured, which was the date his contractual 

rights vested. Buckman, 730 P.2d at 384, 43 St.Rep. at 2222. 

We find the delay caused by the mandatory mediation statutes 

represents a substantial impairment of those contractual 

rights. 

Next, we must ask whether the state has a legitimate 

and significant purpose for the law. The qeneral purpose of 

the new mediation statutes is to encourage out of court 

settlements and thereby lessen the volume of cases filed in 

the Workers' Compensation Court. Section 39-71-2406, MCA. 

This appears to represent a legitimate state purpose. 
The final step of the analysis is whether the law 

imposes reasonable conditions reasonably related to achieving 

the legitimate purpose stated above. As was noted in Neel, 

"unless the State is a party to the contract, courts will 

properly defer to legislative judgment on this step." 207 

Mont. at 392, 675 P.2d at 105. Since the Workers1 

Compensation Court is a named respondent, we consider the 

state a party to this action and will consider this third 

question. 

The record indicates insufficient evidence to 

demonstrate the mandatory nonbinding mediation presents 

conditions reasonably related to achieving the stated purpose 

as applied to those workers injured before the effective date 

of the statutes. Certain vague statistical evidence was 

presented tending to show the mediation procedures were 

encouraging settlement, but the statistics fail to give any 

clear answers. Certainly there is insufficient evidence to 

demonstrate the mediation process will achieve a more 

manageable caseload for the Workers' Compensation Court when 

applied to claimants injured prior to July 1, 1987; those 

claimants whose contractual rights to benefits vested on the 

date of injury. 

Carmichael demonstrates a substantial impairment of his 

contractual rights and there is insufficient evidence to 

demonstrate the mediation statutes achieve their purpose as 

applied to claimants injured prior to the effective date of 

the statute. We hold the retroactive application of the 

mandatory nonbinding mediation statutes unconstitutionally 

impairs a contractual obligation. Accordingly, Carmichael 

may directly petition the Workers' Compensation Court. 
For the foregoing reasons, we reverse the decision of 

the Workers' Compensation Court and remand for further 

consideration consistent with this opinion. 

We concur: 

Chief Justice 

Justices 
Mr. Justice Fred J. Weber dissents as follows: 

Statutes have a strong presumption of constitutionality. 

The burden is upon the party attacking the statute to prove 

unconstitutionality, and it is the duty of the court to 

resolve all doubts in favor of validity whenever possible. 

Reeves v. Ille Electric Co. (1976), 170 Mont. 104, 109, 551 

P.2d 647, 650. With this rule in mind, I dissent from the 

majority's conclusion that the mediation requirement of 

§§ 39-71-2401 and -2406 through -2411, MCA, unconstitutionally impairs contractual obligations as it is retroactively 

applied to Mr. Carmichael. I further conclude that Mr. 

Carmichael has not shown the requirement to be unconstitutional by the other arguments he raised. 

In the order appealed from, the Workers1 Compensation 

Court ruled that the mediation requirement is constitutional 

as applied to Mr. Carmichael and others whose benefits have 

been paid and then terminated. The court further ruled that 

in such cases the mediation process must be completed within 

49 days after the request for mediation. It also provided 

that such claimants would have the option of seeking an 

interim order from the Division of Workers1 Compensation 

under S 39-71-610, MCA. That section allows disputed benefits to be reinstated for up to 49 days. 

The majority uses the three-tier test set forth in 

Energy Reserves in concluding that application of the mediation requirement in this case unconstitutionally impairs a 

contractual obligation. That test requires that if a state 

law substantially impairs a contractual right, the state must 

show a significant and legitimate purpose which the law 

imposes reasonable conditions toward achieving. The majority 

initially concludes that the delay caused by the mandatory 
mediation statutes represents a substantial impairment of 

contractual rights. 

In my opinion, there has been no showing that the mediation requirement substantially impairs any contractual right. 

The requirement does not affect Mr. Carmichael's right to 

workers1 compensation payments; it only presents the possi-- 

bility of a delay in his receiving compensation, provided 

that he shows he is entitled to it. Even under the previous 

statute, workers had no vested right to uninterrupted compensation payments between the time the employer terminated them 

for ineligibility and the ruling by the Workers' Compensation 

Court. Because he raised this matter on supervisory control. 

before proceeding through mediation, Mr. Carmichael has made 

no showing that he is entitled to reinstatement of his benefits. Second, Mr. Carmichael has made no showing of an 

actual delay in his case. We don't know whether or not the 

use of the mediation plus the court process might have resulted in a shorter period of time in the present case. I 

therefore disagree with the theory set forth in the majority 

opinion that the delay presented by mediation is an "addi.- 

tional delay" not existing on the date Mr. Carmichael was 

injured. Third, this Court has recognized that in heavily 

regulated industries, which description fits the area of 

workers1 compensation law, it is inappropriate to assume that 

procedural regulations will remain static. Nee1 v. First 

Federal Sav. and Loan Assoc. (1984), 207 Mont. 376, 392-93, 

675 P.2d 96, 105. 

As a result of my conclusion that there has been no 

substantial impairment of any contractual right of Mr. 

Carmichaells, I would not need to proceed to the other 2 

tiers of the Energy Reserves test. However, because the 

majority concludes that there was an impairment of a contractual right, I will briefly discuss the remaining 2 tiers. I 
agree with the majority conclusion that the second tier is 

met because encouraging out of court settlements and thereby 

lessening the volume of cases filed in the Workers' Compensation Court is a legitimate and significant purpose. 

The final tier is whether the law imposes reasonable 

conditions toward achieving its purpose. I conclude that a 

mediation process is an appropriate means to address the 

Legislature's purpose. The hearing examiner for the Workers' 

Compensation Court submitted an affidavit to this Court which 

compared case filings before and after the mediation requirement was adopted and showed dispositions of cases mediated in 

the first 10 months. The affidavit showed that in the 10 

months in which the mediation requirement had been in effect, 

filings of petitions in the court were reduced from over 900 

to 167. The affidavit also showed that 300 mediations had 

been completed during that period, 159 of which were resolved 

by mediation. We have substantial evidence that the Legislature's chosen means is working satisfactorily for a large 

number of claimants. I would therefore conclude that the 

mediation requirement meets the three-tier test set forth in 

Energy Reserves. 

Because it found the contracts clauses of the U.S. and 

the Montana Constitutions were violated by application of the 

mediation requirement in Mr. Carmichael's case, the majority 

did not consider the three other arguments against the new 

statutes. I will address them briefly. 

Mr. Carmichael argues that the mediation requirement 

violates his due process rights. He has not cited any authority that a delay in re-establishing a right which has 

been unchallengedly taken away is a deprivation of due process. Further, under the former statutes, there was no right 

to a decision by the Workers' Compensation Court within any 

particular time. The 60-day hearing rule is a procedural 
rule of the Workers' Compensation Court, not a right established by statute. I conclude that there is no due process 

problem because there was no right to a continuation of 

benefits between termination by the employer and a decision 

by the Workers' Compensation Court. 

Mr. Carmichael argues that the mediation requirement 

deprives him of his remedy of 49 days of payment of disputed 

benefits, as provided by 5 39-71-610, MCA. However, payment 

of these benefits remains, as it has always been, a discretionary matter with the division once a petition for hearing 

on termination of benefits has been filed. Mr. Carmichael 

has not been deprived of the opportunity to request disputed 

benefits. 

Lastly, Mr. Carmichael argues that the mediation requirement deprives him of a speedy remedy for injury to a 

vested property right in his benefits. We do not have proof 

properly before us that the delay caused by the mediation 

requirement exceeds the delay caused by the previous backloa 

of cases before the Workers' Compensation Court. This Court 

has recognized, in Linder v. Smith (Mont. 1981), 629 P.2d 

1187, 38 St.Rep. 912, that reasonable requirements of first, 

seeking administrative resolution may be placed upon persons 

without depriving them of their right to access to the 

courts. 

I would therefore affirm the ruling of the Workers' 

Compensation Court that the mediation requirement of the 1987 

amendments to the workers' compensation laws is constitutional as applied in Mr. Carmichael's case and as limited by the 

Workers' Compensation Court's order. 
Chief Justice J.A. Turnage and Justice L.C. Gulbrandson 

concur in the foregolnq dissent.