Recent California WCAB Panel Decision Creates Hidden Exposure to Post-Settlement Penalties and Interest
Knowledge

Recent California WCAB Panel Decision Creates Hidden Exposure to Post-Settlement Penalties and Interest

Key Takeaways:

  • When settling, ask your attorney  to include specific settlement terms that resolve claims of interest and penalties that might otherwise accrue post-court order approving settlement and post-court order instructing division of payment of attorney’s fees.

  • If  your matter has an issue of division of opposing attorneys’ fees, ask your attorney to request an interest-free grace period to pay with the court before any decision is issued.

  • Even for non-litigated matters, consider retaining an attorney to finalize settlement to ensure terms of the settlement do not create hidden exposure to penalties and interests.

The WCAB recently issued a panel decision, Abraham Christian v. Ring Security Agency, Inc., which awarded interest against a defendant despite its timely payment of attorney’s fees deriving from settlement. In light of this decision, consulting with your attorney on the precise language of settlement terms is of utmost importance in ensuring the finality of closure of matters and mitigating the risk of unanticipated litigation after settlement is achieved.

What Happened in Christian?

In Christian, the defendant and injured worker agreed to settle their case by a global compromise and release for $400,000; $60,000 of which was attorney’s fees. The court issued an order approving the parties’ compromise and release in February 2010. The settlement agreement also stipulated to the defendant holding the attorney’s fees in trust until the injured worker’s multiple attorneys came to an agreement on the division of fees, or once the court made a decision on the division of fees.

The court’s decision on the division of fees was not reached until more than a year later. The defendant paid the fees pursuant to the court’s decision a mere three days after the date of the decision. Despite timely payment, one of the injured worker’s attorneys claimed entitlement to interest accrued on the attorney’s fees from the date of the order approving the settlement in February 2010 through the payment date of the attorney’s fees in February 2011. The defendant disagreed with the claim, so the injured worker’s attorney brought this issue before the court and sought penalties, sanctions, and additional attorney’s fees for his efforts at enforcing payment.

After trial on this issue, the trial court awarded interest accrued on attorney’s fees for the three days between the date of the court’s decision on the division of fees and the payment date. The trial court also awarded penalties and additional attorney’s fees against the defendant for “unreasonable delay” despite the defendant paying the fees a mere three days after the decision on the division of fees.

The defendant appealed the trial court’s decision. The WCAB reduced the defendant’s liability by awarding only interest accrued for the three days between the decision on the division of fees and the payment of the fees, and rescinding the trial court’s award of penalties and additional attorney’s fees. Nevertheless, the defendant was still compelled by the court to pay some additional interest, despite timely payment.

Preventing Post-Settlement Litigation

We speculate the injured worker’s attorney was emboldened in his quest for additional payment of penalties and interest based on the precise terms of settlement. Presumably, interest on attorney’s fees held in trust was not a delineated subject in the settlement terms in Christian. In light of this, settlement terms relating to penalties and interests should be fine-tuned with your attorney to mitigate the potential for post-settlement litigation and hidden exposure to penalties and interests.

We also note that the court in Christian ultimately awarded some interest to the injured worker’s attorney. A different result may have occurred if the court’s decision on the division of fees had included an interest-free grace period for the defendant to pay. In response to this decision, a consult with your attorney on evolving strategies when confronted with an attorney fee split issue is recommended.

Finally, we recommend consulting with an attorney before finalizing settlements even in non-litigated matters. Statutory deadlines for payment may differ from customary agreements to alter such deadlines between represented parties. Thus, a consult with an attorney may help ensure that the proper deadline is followed, mitigating the potential of hidden exposure to penalties and interests.

If you have any questions about mitigating exposure to hidden penalties and interests and preventing post-settlement litigation, please contact: