No. 87-545

IN THE SUPR.EME COURT OF THE STATEOF MONTANA
1988

HOAGY CARMICHAEL, Relator,-vs
### THEWORKERS' COMPENSATION COURT OF THE STATE OF MONTANA, THEHONORABLE TIMOTHYREARDON,PRESIDING and ARC0 METALS, IFlC.

### ,Respondents.

ORIGINAL PROCEEDING:

COUNSEL OF RECORD:

ForRelator:
Bothe & Lauridsen; Laurie Wallace argued, Columbia Falls,Montana

ForRespondent:

prray,Kaufman,Vidal & Gordon; JamesRamlow argued, *.alispell,Montana c:

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.... CC;, *.- 4./L I7 

### -- Filed: o

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## . Submitted: September 1,1988 Decided: November 1,1988

ClerkMr. JusticeJohn 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 ofdeterminingwhether 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 thatdue tohis disabilityhewas 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 claimbased 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. Section39-71-2408,MCA, became effective July 1, 1987and ispart 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 retroactivemandatory 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 substantialas to render theprocess unconstitutional. While noting the mandatory mediation may cause some hardship, the court also rejected Carmichael's due process argument. However, the court did review theAdministrative 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 themediationprocess be completedwithin 49 days. On December 16, 1987, Carmichael filed an application for awrit 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 concerningdispute resolutionandmediation, 

### 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 nopetition was filed with theWorkers1CompensationCourt until after thatdate. 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 constitutionalissue 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 receivingbenefits prior toJuly 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 gobeyond 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 ofinjury. 1987Mont. Laws 464, Section 72. Carmichael argues the retroactive change results in a significant procedural delay substantially impairing his contractualrights. "This Court has assumed for a number ofyears 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 Constitutionsprohibit state laws impairing the obligationof a contract. Art I,Sec. 10,U.S.Const; andArt. 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 mandatorymediation statutesretroactively altered this right to directly petition the Workers' Compensation Court. Carmichael concludes since the mediation may result in a substantialdelay causing him a significant hardship, the new mediationprocedure is a substantial impairment of hisvested contractualright. 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 allcircumstances. Arco argues the legislaturehas 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 Carmichaelmay ormay notbe 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 TJightCo. 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 significantand 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), 207Mont. 376, 392, 675 P.2d 96, 104-105. See also, Buckman, 730 P.2d at 385, 43 St.Rep. at 2007. Although this Courtclearly recognizes that our state constitutionprovides rights and protections separate from those afforded by the federal constitution, 

### "[wle 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, (citingNeel, 675P.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, iswhether themandatory 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 isnotnecessary,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 themediation may result in a delay of 100 days. With the exception ofhis 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 rightsvested. Buckman, 730 P.2d at 384, 43 St.Rep. at 2222. We find the delay caused by themandatorymediation statutes represents a substantial impairment 

### of those contractual rights. Next, we must ask whether the state has a legitimate and significantpurpose 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 representa legitimate statepurpose.The final step of the analysis is whether the law imposes reasonable conditionsreasonably 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 conditionsreasonably related to achieving the statedpurpose

as applied to thoseworkers 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 Courtwhen applied to claimants injured prior to July 

### 1, 1987; those claimantswhose contractual rights to benefits vested on the date of injury. Carmichaeldemonstrates a substantial impairmentofhis 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 consistentwith this opinion.

We concur:

Chief Justice

JusticesMr. JusticeFred J. Weber dissentsas 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 unconstitutionalby 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 processmust be completedwithin 

### 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 tobe reinstated forup to 49 days. The majority uses the three-tier test set forth in Energy Reserves in concluding that application of themediation requirement in this case unconstitutionally impairs a contractual obligation. That test requires that if a state law substantially impairsa contractual right, the state must show a significant and legitimate purpose which the law imposes reasonable conditionstoward achieving. Themajority initially concludes that the delay caused by the mandatorymediation statutes represents a substantial impairment of contractualrights. Inmy opinion,there hasbeen no showing that themediation requirement substantially impairsany 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, workershad novested right touninterrupted compensation payments between the time the employer terminated them for ineligibility and the rulingby the Workers' Compensation Court. Because he raised thismatter on supervisory control. before proceeding through mediation, Mr. Carmichaelhasmade

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

### in his case. We don't knowwhether 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 themajority 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 workers1compensation 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, 675P.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 therewas an impairment of a contractual right, Iwill briefly discuss the remaining 2 tiers. Iagree with the majority conclusion that the second tier is met because encouraging out of court settlementsand thereby lessening the volume of cases filed in theWorkers' Compensation Court isa legitimateand significantpurpose. 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'spurpose. Thehearing examiner for theWorkers' CompensationCourt 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 10months. The affidavit showed that in the 10 months inwhich themediation requirementhad been in effect, filings of petitions in the courtwere reduced from over 900 to 167. The affidavit also showed that 300 mediations had been completedduring thatperiod, 159ofwhichwere resolved by mediation. We have substantialevidencethat the Legislature's chosen means is working satisfactorily for a large number of claimants. I would therefore conclude that the mediation requirementmeets the three-tier test set forth in Energy Reserves. Because it found the contracts clauses of the U.S. and the Montana Constitutionswereviolated by application of the mediation requirement in Mr. Carmichael's case, themajority did not consider the three other arguments against the new statutes. Iwill 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,therewas no right to a decision by the Workers' Compensation Court within any particular time. The 60-day hearing rule is a proceduralrule 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 theWorkers' CompensationCourt. 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 theprevious backloa of cases before theWorkers' 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 themediation requirement of the 1987 amendments to theworkers' compensation laws is constitutional as applied inMr. 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.