Case Name: CITY OF LOUISVILLE, Appellant, v. Larry SLACK; Freeda Clark, Individually; Donna H. Terry, Administrative Law Judge; and Workers' Compensation Board, Appellees
Court: Supreme Court of Kentucky
Jurisdiction: Kentucky
Decision Date: 2001-03-22
Citations: 39 S.W.3d 809
Docket Number: No. 1999-SC-0580-WC
Parties: CITY OF LOUISVILLE, Appellant, v. Larry SLACK; Freeda Clark, Individually; Donna H. Terry, Administrative Law Judge; and Workers’ Compensation Board, Appellees.
Judges: COOPER, KELLER, and WINTERSHEIMER, JJ., concur.
Reporter: South Western Reporter Third Series
Volume: 39
Pages: 809–816

Head Matter:
CITY OF LOUISVILLE, Appellant, v. Larry SLACK; Freeda Clark, Individually; Donna H. Terry, Administrative Law Judge; and Workers’ Compensation Board, Appellees.
No. 1999-SC-0580-WC.
Supreme Court of Kentucky.
March 22, 2001.
Stuart E. Alexander III, Dana Taylor Skaggs, Tilford, Dobbins, Alexander, Buckaway & Black, Louisville, Counsel for Appellant.
Freeda M. Clark, Louisville, Counsel for Appellees, Freeda M. Clark and Larry Slack.
Donna H. Terry, Chief Administrative Law Judge, Department of Workers’ Claims, Frankfort, Counsel for Appellee, Donna H. Terry.
Walter W. Turner, Commissioner, Department of Workers’ Claims, Frankfort, Counsel for Appellee, Workers’ Compensation Board.

Opinion:
JOHNSTONE, Justice.
This workers' compensation appeal concerns the constitutionality of the 1996 amendment to KRS 342.320(2)(e), requiring an employer or its carrier to pay up to $5,000.00 of an injured worker's attorney fees if the employer appeals an award by an arbitrator or Administrative Law Judge (ALJ) and does not prevail. We hold that the statute is unconstitutional and reverse the decision of the Court of Appeals.
Claimant, Larry Slack, was injured in August 1996, while employed as a park maintenance worker for the City of Louisville, and filed a workers' compensation claim in May 1997. He was awarded a 40 percent permanent partial disability benefit by an arbitrator, after which the employer sought de novo review before an ALJ pursuant to KRS 342.275. The ALJ determined that Slack was totally disabled and awarded a period of temporary total disability benefits, an award more favorable than that of the arbitrator. Slack then moved for an award of attorney fees pursuant to KRS 342.320(2)(c), and the ALJ awarded a fee of $4,000.00, to be assessed against the City of Louisville, which appealed the award to the Workers' Compensation Board (Board). The Board affirmed the ALJ. The City of Louisville then appealed the Board's ruling to the Court of Appeals. The City of Louisville challenged the award of attorney fees on the grounds that it constitutes an unjust taking of property; that KRS 342.320(2)(c) is arbitrary class legislation; that it denies the employer both procedural and substantive due process; and that it violates both the United States and Kentucky Constitutions. The Court of Appeals affirmed.
At the time Slack moved for attorney fees, KRS 342.320(2)(c) provided:
Upon an appeal by an employer or carrier from a written determination of an arbitrator or an award or order of an administrative law judge, if the employer or carrier does not prevail upon appeal, the administrative law judge shall fix an attorney's fee to be paid by the employer or carrier for the employee's attorney upon consideration of the extent, quality, and complexity of the services rendered not to exceed five thousand dollars ($5,000) per level of appeal. This attorney's fee shall be in addition to any fee awarded under paragraphs (a) and (b) of this subsection.
KRS 342.320(2)(c) was deleted by the General Assembly effective July 14, 2000. 2000 Ky. Acts Ch. 514 § 24.
The issue in this case is almost identical to the one presented in Burns v. Shepherd, Ky., 264 S.W.2d 685 (1954), which concerned a challenge to "the constitutionality of KRS 342.320(2), Acts of 1952, Chapter 182, § 12, under which an employer is required to pay one-half of the claimant's attorney fee in the case of an award by the Workmen's Compensation Board, growing out of injury or death of an employee." Id. at 686. Thus, both Bums and the case at bar involve a constitutional challenge to an amendment to the same statute that requires an employer to pay part or all of a claimant's attorney fees regardless of fault. The Bums Court held that the indiscriminate application of the statute rendered it unconstitutional:
Unless based upon some unreasonable delay or willful failure of the employer, there could be no more constitutional justification for requiring the employer to pay all or part of the employee's attorney fee than to require payment of his grocery bill. Unless some standards are provided by which the requirement would apply only to employers who have unreasonably or willfully violated some obligation which they owe to an employee, we do not think the statute can be sustained as constitutional. It violates the due process clause of the Federal Constitution and Section 2 of the Kentucky Constitution which declares that absolute and arbitrary power exists nowhere in a republic.
Id. at 687-88.
The Court of Appeals believed that the holding of Burns was so weakened by Owens v. Clemons, Ky., 408 S.W.2d 642 (1966), that Bums was not controlling authority despite the remarkable similarity between that case and this one. This seriously misread Owens, which neither overruled nor weakened the holding of Burns, but rather distinguished it. Id. at 646. Burns is still good law after Owens and the Court of Appeals erred in not following it as precedent. SCR 1.030(8)(a). Further, we decline any invitation to overrule Bums and, therefore, reverse the Court of Appeals.
The Court of Appeals may have been led astray by this passage in Owens:
The broad statement in [Bums] that the sole justification for the imposition of fees is the willful violation of a statutory obligation is inaccurate. The cases recognize other grounds. As shown in the language above quoted from the Teague case (297 Ky. 475, 180 S.W.2d 387), such a penalty (if properly it may be so characterized) can be justified as a protective measure for a certain class of workers. In Chicago & N.W.R. Co. v. Nye-Schneider Fowler Co., 260 U.S. 35, 43 S.Ct. 55, 67 L.Ed. 115 [(1922)], the basis for upholding a statute allowing an attorney's fee to those asserting property damage claims against railroad companies was that such a law stimulated the seasonable consideration and prompt payment of such claims.
Id. at 645-46. In addition to citing this passage, the Court of Appeals listed a number of other statutes that require one party to pay attorney fees for another as justification for its holding. But this misses the point of Bums entirely.
Burns was not decided based on blind adherence to the "American Rule," which provides that each party pays its own attorney fees, win or lose. See Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). Rather, Burns turned on the idea that the arbitrariness of the statute violated basic notions of fundamental fairness:
In the statute under consideration, no distinction is made between the just and the unjust. It applies with equal force to the employer who, without reasonable basis for his position, is trying to escape his statutory responsibility, and the employer who is neither seeking to avoid or delay payment of a valid claim asserted by the employee.
As illustrating how the statute may penalize an innocent employer, there may be many instances in which there would be a good faith disagreement between the employer and employee as to the extent of disability resulting from an injury. The award of the Board may agree with the employer in determining the extent of disability; yet, if there is any award whatever, the employer is required to pay one-half of the attorney fee, notwithstanding he may have been completely successful in sustaining his position.
Burns, 264 S.W.2d at 687.
The statute in the ease at bar acts just as arbitrarily or more so. Its operation likewise violates the City of Louisville's right to procedural due process.
PROCEDURAL DUE PROCESS
This case concerns an appeal from a determination by an arbitrator, a position that no longer exists within the Workers' Compensation statutes. See 2000 Ky.. Acts Ch. 514, et seq. When the legislature created the arbitrator position and procedures in 1996, it created a means and method for prompt arbitration of claims. But expediency came at a price of reliability and accuracy:
• The arbitrator must render a determination within ninety (90) days of the assignment of the claim. KRS 342.270(4).
• No transcript is permitted at the arbitrator level. 803 KAR 25:010 § 8(3) (1997).
• A deposition of the opposing party is not permitted unless the party agrees. 803 KAR 25:010 § 5(a) (1997).
• Proof is based upon medical reports and records. 803 KAR 25:010 § 8(4) (1997).
• The right to cross-examine medical experts is subject to the approval of the arbitrator upon a showing of good cause. 803 KAR 25:010 § 8(4) (1997).
• The arbitrator need not be an attorney, rather is only required to have "extensive knowledge in workers' compensation law." KRS 342.230(9).
A party aggrieved by an arbitrator's decision has far more than the right to an appeal on a cold record:
Within thirty (30) days after the filing of the benefit review determination with the commissioner, any party may appeal that determination by filing a request for hearing before an administrative law judge. Proceedings before the administrative law judge shall be de novo .
KRS 342.275(1) (emphasis added).
A de novo review is quite different than an appeal on the record. In this case, it amounts to the right to retry the claim on the merits in front of an ALJ. Further, the proceedings before the ALJ include procedural safeguards not provided in the hearing before the arbitrator, including:
• The taking of a transcript. 803 KAR 25:015 § 3(1) (1997).
• The application of the Kentucky Rules of Evidence. 803 KAR 25:010 § 15 (1997).
• The right to discovery and to depose witnesses according to certain Kentucky Civil Rules of Procedure. 803 KAR 25:010 § 18 (1997).
• The ALJ is required to be an attorney with at least five years' experience in workers' compensation law. KRS 342.230(3).
A party affected by an administrative order is entitled to procedural due process. American Beauty Homes Corporation v. Louisville and Jefferson County Planning and Zoning Commission, Ky., 379 S.W.2d 450, 456 (1964). "It is an established rule that an enactment accords due process of law, if it affords a method of procedure with notice, and operates on all alike." Parrish v. Claxon Truck Lines, Inc., Ky., 286 S.W.2d 508, 512 (1955), quoting Pacific Live Stock Company v. Lewis, 241 U.S. 440, 36 S.Ct. 637, 60 L.Ed. 1084 (1916). The right to a de novo review provided by KRS 342.375(1) is clearly part of the due process for determining the value of a claim made pursuant to the Workers' Compensation statutes. The indiscriminate imposition of attorney fees mandated by KRS 342.320(2)(c) on an employer who loses in arbitration results in an unequal operation of the procedure. It therefore violates the City of Louisville's right to procedural due process.
ARBITRARY POWER
By limiting discovery and attorney involvement, the statutory arbitration proceedings promote prompt workers' compensation determinations. However, they also limit a party's ability to adequately evaluate: (1) the claimant's medical records and reports; (2) the cause of injury and work relatedness; (3) the level of impairment; and (4) the reasonable prognosis of alleged injuries. In such a situation, it hardly seems unreasonable or unlikely that an employer might, in good faith, wish to appeal an arbitrator's ruling in order to test its fairness and accuracy.
KRS 342.275(1) provides in relevant part that the right to appeal an arbitrator's award is "subject to penalties for unreasonable proceedings under KRS 342.310." In turn, KRS 342.310(1) provides a means for sanctioning an employer who brings an appeal in bad faith by giving the ALJ discretion to assess costs, including attorney fees, in an unreasonable proceeding. Thus, the only purpose served by KRS 342.230(2)(c) is to punish an employer who brings an appeal in good faith. The statute is a pure act of arbitrary power that violates Section 2 of the Kentucky Constitution.
Therefore, we reverse the Court of Appeals and remand to the ALJ with instructions to enter an order with regard to the attorney fees that is consistent with this Opinion. Further, for the sake of clarity and consistency, we overrule Earthgrains v. Cranz, Ky.App., 999 S.W.2d 218 (1999).
COOPER, KELLER, and WINTERSHEIMER, JJ., concur.
GRAVES, J., dissents by separate opinion, with LAMBERT, C.J.; and STUMBO, J., joining that dissent.
. We note that because the right to appeal provided by KRS 342.270(4) is to an Administrative Law Judge rather than to a judicial court, the prescription contained in Section 115 of the Kentucky Constitution that "[a]p-peals shall be upon the record and not by trial de novo," does not apply to this case. See Vessels v. Brown-Forman Distillers Corp., Ky., 793 S.W.2d 795, 798 (1990).
. Earthgrains was rendered on July 16, 1999, some eleven months after the Court of Appeals rendered its opinion in the case at bar and holds directly contrary to our holding today. Earthgrains was not cited by either party.