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Cole v. Ketchikan Pulp Co. and Timber Ins. Exchange (4/23/93), 850 P 2d 642
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NOTICE: This opinion is subject to
formal correction before publication in the
Pacific Reporter. Readers are requested to
bring typographical or other formal errors to
the attention of the Clerk of the Appellate
Courts, 303 K Street, Anchorage, Alaska
99501, in order that corrections may be made
prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
BRUCE COLE (deceased) and )
LORENA COLE (widow), ) Supreme Court No. S-4783
)
Appellant, )
)
v. ) Superior Court No.
) 1JU-90-1429 CIVIL
KETCHIKAN PULP COMPANY and )
ALASKA TIMBER INSURANCE )
EXCHANGE, )
) O P I N I O N
Appellee. )
______________________________) [No. 3946 - April 23, 1993]
Appeal from the Superior Court of the
State of Alaska, First Judicial District,
Juneau,
Larry Weeks, Judge.
Appearances: Chancy Croft, Anchorage,
for Appellants. J.W. Peterson, Ziegler,
Cloudy, King & Peterson, Ketchikan, for
Appellees.
Before: Moore, Chief Justice,
Rabinowitz, Burke, Matthews, and Compton,
Justices.
RABINOWITZ, Justice.
I. BACKGROUND
Bruce Cole (Cole) suffered a back injury on August 31,
1982 while working for Ketchikan Pulp Company (Ketchikan Pulp).
Cole was paid disability compensation benefits for a period of
time until disputes between the parties resulted in his benefits
being terminated.
In January 1988, Cole's attorney, Phillip Pallenberg
(Pallenberg), offered to settle Cole's claims for $150,000 plus
statutory attorney's fees. Ketchikan Pulp's attorney, Paul
Hoffman (Hoffman), made a counteroffer of $30,000 plus statutory
attorney's fees. The parties were not able to reach an
agreement.
While Cole's disability claim was pending, the parties
continued to dispute a number of issues.1 On May 9, 1989, Cole
was deposed by Hoffman. Pallenberg testified that following the
deposition, Pallenberg and Cole talked about settling the case.
By the end of May the parties were discussing a settlement of
$75,000 plus statutory attorney's fees. Lorena Cole testified
that at the time of settlement negotiations, Cole had not as yet
been diagnosed as having cancer.
Cole learned that he had prostate cancer on May 23,
1989. Hoffman and Pallenberg had telephone conversations on May
24th and 25th and reached agreement to settle for $75,000 on May
30, 1989. Pallenberg confirmed the agreement by letter to
Hoffman. The letter reads as follows:
Dear Paul:
This is to confirm that we have agreed
to settle this case for a gross settlement
amount of $75,000.00. This amount will be
allocated $68,500.00 to Mr. Cole, and
$6,500.00 for costs and attorneys fees.
Hoffman then drafted a Compromise and Release. During the
settlement discussions Pallenberg did not disclose to Hoffman
that Cole had been diagnosed as having cancer.
Hoffman sent the Compromise and Release to Pallenberg
on June 7, and requested that Cole and Pallenberg both sign and
return the document so that it could be filed with the Workers'
Compensation Board (Board) for its approval. Pallenberg signed
the Compromise and Release and mailed it to Cole. In the June
9th transmittal letter, Pallenberg indicated that he was aware of
Cole's serious "unrelated health condition"and urged Cole to
"execute the agreement quickly." Pallenberg also advised Cole
that "it is important that this settlement be signed as soon as
possible, because of the possibility that [the Employer] could
back out of it if they learn of your illness before it is
approved."
Cole underwent prostate and bowel surgery on June 7,
1989. A blood clot formed and migrated, resulting in Cole's
death. Cole died before receiving and signing the Compromise and
Release.
Pallenberg subsequently filed an Application for
Adjustment of Cole's Temporary Total Disability (TTD) benefits,
but did not submit the Compromise and Release to the Board for
approval. Pallenberg testified that in his view, at the time of
Cole's death, the settlement was not enforceable. Hoffman
testified that he saw no need to withdraw the agreement, because
in his view it was void as soon as Cole died. Thus, no action
was taken by either attorney to enforce or to withdraw the
settlement.
Cole was survived by Lorena, his wife of 44 years, and
four daughters. On May 31, 1990, represented by different
counsel, Lorena submitted the Compromise and Release to the Board
for its approval. After hearing the matter the Board refused to
approve the Compromise and Release because in its opinion the
agreement, which had been signed only by Mr. Pallenberg, failed
to meet the signature requirements of 8 Alaska Administrative
Code (AAC) 45.160(b) (1991). Lorena then appealed the Board's
decision to the superior court. The superior court affirmed the
Board's decision concluding that the Board:
[H]ad the power to waive the signature.
I don't believe that they had to. I think
that the information with respect to having
cancer and so forth is something that they
could be concerned about and feel like that
in those circumstances it simply wasn't the
equitable thing to do. . . . And I think
that at this time when the board got this
agreement that the parties were not all in
agreement, and I think that they had the
discretion not to waive the signature.
II. STANDARD OF REVIEW
Since the superior court was acting as an intermediate
court of appeal, this court may "independently [scrutinize]
directly the merits of the administrative determination." Tesoro
Alaska Petroleum Co. v. Kenai Pipe Line Co., 746 P.2d 896, 903
(Alaska 1987).
This matter requires us to address the appropriate
standard of review regarding two issues: First, the Board's
interpretation of AS 23.30.012 and the statute's implementating
regulation, 8 AAC 45.160(b), and secondly, the Board's
interpretation of 8 AAC 45.195, the regulation concerning waiver
of procedures. The parties contest the appropriate standard of
review for each issue.
Cole argues that both the question of whether the
unsigned Compromise and Release Agreement complied with AS
23.30.012 and whether the Board "erred in failing to apply 8 AAC
45.195 so as to prevent a 'manifest injustice'"are questions of
law that require us to substitute our independent judgment for
the judgment of the Board. Cole contends that the issues do not
involve agency expertise.
Ketchikan Pulp argues that the language of AS 23.30.012
commits the approval or denial of Compromise and Releases "to
agency expertise or agency discretion,"and that therefore this
court should review such actions using the rational basis
standard under the logic of Phillips v. Houston Contracting,
Inc., 732 P.2d 544, 547 (Alaska 1987), appeal after remand,
Houston Contracting, Inc. v. Phillips, 812 P.2d 598 (Alaska
1991). Similarly, Ketchikan Pulp contends that in our review of
the waiver issue we should employ the rational basis standard,
and restrict our scrutiny to the question of whether the Board
engaged in reasoned decision-making.
In Tesoro Alaska Petroleum v. Kenai Pipe Line, 746
P.2d 896, 903 (Alaska 1987) this court stated that "[t]he
rational basis test is used where the questions [of law] at issue
implicate special agency expertise or the determination of
fundamental policies within the scope of the agency's statutory
function." Since no special expertise is required to determine
whether or not a proposed settlement agreement conforms with the
requirements of 8 AAC 45.160 we review this issue under the
substitution of judgment standard.
Similarly, we review the question of whether the Board,
under 8 AAC 45.195, has authority to waive the signature
requirement of 8 AAC 45.160(b) under the substitution of judgment
standard.
III. DID THE WORKERS' COMPENSATION BOARD ERR IN DENYING LORENA
COLE'S REQUEST TO APPROVE A COMPROMISE AND RELEASE AGREEMENT
WHICH WAS NEGOTIATED BUT NOT EXECUTED BEFORE COLE'S DEATH?
Cole initially contends that the Compromise and Release
met the statutory requirements of AS 23.30.012. This statute
provides:
Agreements in regard to claims. At any
time after death, or after 30 days subsequent
to the date of the injury, the employer and
the employee or the beneficiary or
beneficiaries, as the case may be, have the
right to reach an agreement in regard to a
claim for injury or death under this chapter
in accordance with the applicable schedule in
this chapter, but a memorandum of the
agreement in a form prescribed by the board
shall be filed with the board. Otherwise,
the agreement is void for any purpose. If
approved by the board, the agreement is
enforceable the same as an order or award of
the board and discharges the liability of the
employer for the compensation notwithstanding
the provisions of AS 23.30.130, 23.30.160,
and 23.30.245. The agreement shall be
approved by the board only when the terms
conform to the provisions of this chapter
and, if it involves or is likely to involve
permanent disability, the board may require
an impartial medical examination and a
hearing in order to determine whether or not
to approve the agreement. The board may
approve lump-sum settlements when it appears
to be to the best interest of the employee or
beneficiary or beneficiaries.
More specifically, Cole argues that the parties reached an
agreement in regard to a claim; a memorandum of the agreement in
a form prescribed by the Board was filed with the Board; and the
settlement was in the best interests of Lorena Cole.
Ketchikan Pulp responds that the Board was correct in
finding that the Compromise and Release was not enforceable
because it did not meet the mandatory requirements of AS
23.30.012 and 8 AAC 45.160. Ketchikan Pulp notes that AS
23.30.012 both requires a memorandum of the settlement agreement
to be filed with the Board in a prescribed form, and conditions
Board approval on the agreement's conformance with the provisions
of the chapter. Ketchikan Pulp contends that, read as whole,
"the process which [AS 23.30].012 contemplates is that C&R's
[sic] will be filed with the Board and subject to Board approval
before they are enforceable."
Additionally, Ketchikan Pulp notes that Cole's position
is inconsistent with the requirements of 8 AAC 45.160 (b), (c),
and (d). Since 8 AAC 45.160 was adopted by the Board pursuant to
its general power under AS 23.30.005 to adopt regulations
Ketchikan Pulp submits that "the regulation carries with it a
presumption of validity and . . . reflects that the Board is
charged with specialized expertise in its statutory
interpretation of .012."2
Ketchikan Pulp further asserts that the Compromise and
Release by its very terms is unenforceable as it conditions
enforceability on Board approval. It refers to that portion of
the agreement which states:
[T]he parties agree that upon approval
of this Compromise and Release by the Alaska
Workers' Compensation Board and the payment
of the compromise funds aforesaid in
accordance with the provisions of this
Compromise and Release, this Compromise and
Release shall be enforceable and shall
forever discharge from liability the
employer. . . .
Cole is incorrect in her assertion that the agreement
is valid under the Workers' Compensation Act and binding on the
parties. Alaska Statute 23.30.012 unambiguously mandates that "a
memorandum of the agreement in a form prescribed by the board
shall be filed with the board. Otherwise, the agreement is void
for any purpose. If approved by the board, the agreement is
enforceable. . . ."
Further, AS 23.30.012 provides in part that "the agree
ment shall be approved by the board only when the terms conform
to the provisions of this chapter. . . ." Pursuant to this
statutory authorization the Board promulgated 8 AAC 45.160 which
provides a regulatory scheme for obtaining the approval of
agreements. In addition to requiring agreements to be submitted
in writing and signed by all parties, the regulation expressly
indicates when agreements are considered final. "Agreed
settlements between the employer and the employee . . . are not
final until approved by the board." 8 AAC 45.160(d). Thus, it
is clear that enforceability of any agreement is conditioned upon
Board approval.
Cole additionally argues that the Board erred in not
waiving the requirement that all settlement agreements "must be
signed by all parties to the action." In support of this
contention Cole relies on the fact that the Board's own
regulations allow waiver of procedural requirements if manifest
injustice to a party would result from strict application of the
regulation. Cole contends that the Board's decision omitting any
reference to 8 AAC 45.195 which controls procedural waivers, and
its decision to withhold approval of the Compromise and Release,
resulted in "manifest injustice."3
Ketchikan Pulp contends that Cole's waiver arguments
are misplaced because under 8 AAC 45.195 "waiver may not be
employed merely to excuse a party from failing to comply with the
requirements of law or to permit a party to disregard the
requirements of law." Ketchikan Pulp quotes the following
passage from the Board decision in the Adamson case in which the
Board considered a similar issue:
The employer asks us to be "flexible"
and, in essence, disregard the clear language
of AS 23.30.012. We believe that request
cannot properly be granted by an
administrative agency attempting to apply the
law as it exists. The employer's policy
arguments are more properly the province of a
court of competent jurisdiction. However, we
specifically reject the argument that 8 AAC
45.195 (which permits us to waive procedural
requirements of our regulations where
manifest injustice would otherwise result)
gives us such "flexibility". 8 AAC 45.195
concludes "a waiver may not be employed
merely to excuse a party for failing to
comply with the requirements of law or to
permit a party to disregard the requirements
of law.
Adamson v. University of Alaska, AWCB Decision and Order 88-0066
(March 31, 1988). Ketchikan Pulp argues that even if the Board
could waive the statutory requirements of AS 23.30.012, there is
no manifest injustice here because Lorena received the TTD amount
that survives Cole's death under the statutory scheme. "The
additional amount she seeks here is in essence a windfall."
The Board refused to approve the Compromise and Release
because it believed that it was not within its power to approve
an agreement that departed from the form prescribed by 8 AAC
45.160(b). In this regard the Board stated:
Although it would be in Lorena
Cole's best interest to do so, we regretfully
conclude that we may not approve the C&R.
The statute, AS 23.30.012 provides
that the C&R must be filed with us, in the
form which we prescribe; "[o]therwise the
agreement is void for any purpose." We have
prescribed the form for C&Rs in our
regulation 8 AAC 45.190(b). Our regulation
clearly provides that C&Rs must be signed by
both parties and their attorneys. Only Mr.
Pallenberg signed the C&R.
However, 8 AAC 45.195 authorizes the Board to waive
procedural requirements of its own regulations "if manifest
injustice to a party would result from a strict application of
the regulation." In its decision in the instant case the Board
failed to discuss the waiver provisions of 8 AAC 45.195 but did
note that "it would be in Lorena Cole's best interest"to approve
the Compromise and Release.
We construe 8 AAC 45.195 as empowering the Board, in
circumstances such as are present in this record, to waive the
signature requirement of subsection (b) of 8 AAC 45.160.4 The
Board withheld its approval of the Compromise and Release on the
basis that it lacked the authority to waive the signature
requirement. Therefore, the Board never engaged in the reasoned
decision making that we are obligated to ensure under a rational
basis review. We conclude that the Board's decision must be
vacated and the matter remanded to the Board to redetermine
whether it should approve the Compromise and Release in question
in this case.
Upon remand the Board must determine whether or not the
requirement of the parties' signatures should be waived. In the
event the Board decides that it should waive the signature
requirement pursuant to 8 AAC 45.195, the Board should further
consider whether the terms of the Compromise and Release conform
to the provisions of the Workers' Compensation Act. This
reflects our belief that any conformity issue should first be
presented to the Board for resolution.
The Board seemed to anticipate the conformity issue in
its decision, stating:
Due to employee's condition, he would
have been entitled to unscheduled permanent
partial disability compensation under AS
23.30.190(a)(2). Disability compensation may
be awarded after the death of an employee,
but surviving spouses and children of the
deceased employee are not entitled to receive
unscheduled permanent partial disability
compensation payable to the employee.
The Board, however, did not rule on the issue of whether,
assuming that the agreement was signed by the employee before his
death but not presented for approval to the Board until after the
employee's death, the terms of the agreement would conform to the
provision of the Workers' Compensation statute. Because of this
and because nonconformity was not briefed or argued on appeal, we
believe that any conformity issue should first be presented to
the Board for resolution.
REVERSED and REMANDED to the superior court with
directions to remand to the Board to conduct further proceedings
in conformity with this opinion.
_______________________________
1. The Workers' Compensation Board requires that there be a
bona fide dispute between the parties in order for a Compromise
and Release to be approved. The parties agree that there were
many disputed issues throughout the years the claim was pending.
2. 8 AAC 45.160 AGREED SETTLEMENTS (b), (c), and (d) read
as follows:
(b) All settlement agreements must
be submitted in writing to the board, must be
signed by all parties to the action and their
attorneys or representatives, if any, and
must be accompanied by form 07-6117.
(c) Every agreed settlement must
conform strictly to the requirements of AS
23.30.012 and, in addition, must
(1) be accompanied by all
medical reports in the parties'
possession, except that, if a medical
summary has been filed, only those
medical reports not listed on the
summary must accompany the agreed-upon
settlement;
(2) include a written
statement showing the employee's age and
occupation on the date of injury,
whether and when the employee has
returned to work, and the nature of
employment;
(3) report full
information concerning the employee's
wages or earning capacity;
(4) state in detail the
parties' respective claims;
(5) state the attorney's
fee arrangement between the employee or
his beneficiaries and the attorney,
including the total amount of fees to be
paid;
(6) itemize in detail all
compensation previously paid on the
claim with specific dates, types,
amounts, rates, and periods covered by
all past payments; and
(7) contain other
information the board will, in its
discretion and from time to time,
require.
(d) The board will inquire into
the adequacy of all agreed settlements and
will, in its discretion, set the matter for
hearing to determine whether an agreement
should be approved or disapproved. Agreed
settlements between the employer and the
employee or other persons claiming benefits
under the Act are not final until approved by
the board.
3. 8 AAC 45.195 reads:
WAIVER OF PROCEDURES. A procedural
requirement in this chapter may be waived or
modified by order of the board if manifest
injustice to a party would result from a
strict application of the regulation.
However, a waiver may not be employed merely
to excuse a party from failing to comply with
the requirements of law or to permit a party
to disregard the requirements of law.
Cole analogizes the Compromise and Release signature
requirement to the Statute of Frauds, in part because "under the
Statute of Frauds, a contract which does not satisfy the require
ments of AS 09.25.010, but which is otherwise valid is
enforceable if the party against whom enforcement is sought
admits, in pleadings or in any other action or proceeding the
making of an agreement."AS 09.25.020(4). Cole submits that the
Compromise and Release should be enforced in the instant case
"because the employer has admitted . . . the making of the
agreement."
4. At oral argument counsel for Ketchikan Pulp conceded
that the Board possessed this authority under 8 AAC 45.160.
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