In a recent decision with profound implications for defending workers’ compensation claims in New York, the Court of Appeals reversed the First Department and held that the doctrine of collateral estoppel bars a plaintiff from litigating duration of disability in New York State Supreme Court when the plaintiff previously litigated the same issue to a full and final decision as a claimant in a corresponding matter before the Workers’ Compensation Board (WCB).

The plaintiff in Auqui v. Seven Thirty One Ltd. Partnership, 2013 NY Slip Op 950 (N.Y. Feb. 14, 2013, was injured in 2003 when a sheet of plywood fell from a building under construction. He sustained injuries to his head, neck, and back, and later developed post-traumatic stress disorder and depression. The plaintiff commenced a third-party personal injury action in Supreme Court against the owners of the building under construction, the construction manager, and the concrete superstructure subcontractor. At the same time, the plaintiff filed a claim for benefits against his employer’s workers’ compensation insurance carrier and appeared as a claimant before the WCB.

While the personal injury action was pending in Supreme Court, the claimant litigated his degree of disability in connection with his claim before the WCB. In 2006, the workers’ compensation carrier moved the board to find that the claimant had no ongoing disability from work. Following litigation involving medical testimony, the Administrative Law Judge (ALJ) presiding over the case ruled that the plaintiff was no longer disabled from work as of January 24, 2006, and required no additional medical treatment for any of his injuries except for post-traumatic stress disorder. A full panel of the WCB affirmed the ALJ’s findings.

In April 2009, the defendants in the personal injury action moved the trial court to preclude the plaintiff from relitigating the duration of his causally related degree of disability on the grounds that the issue had been fully litigated and ruled on as part of the workers’ compensation administrative proceeding. The trial court granted the motion. However, while the motion was pending, the plaintiff’s attorney had commenced a Mental Hygiene Law Article 81 petition. Based on uncontested evidence of incapacity, Verdugo’s wife and his sister-in-law were appointed coguardians. The plaintiff’s attorney then moved for leave to renew and/or reargue the defendants’ collateral estoppel motion in Supreme Court on the grounds that the guardianship order raised a triable issue of fact regarding the plaintiff’s ability to work.

While the trial court granted the plaintiff the requested relief, the court ultimately adhered to its original decision in finding issue preclusion. The plaintiff appealed to the First Department, which reversed, holding that the WCB’s determination regarding degree of disability was an ultimate conclusion involving a mixed question of both fact and law ingrained with policy considerations along with the board’s expertise, as opposed to a mere evidentiary fact. Therefore, the First Department reasoned, the board’s ruling on the issue was not entitled to preclusive effect. In a 5-1 decision (Judge Pigott dissenting), the Court of Appeals reversed, holding:

The determination of the WCB should be given preclusive effect as to the duration of plaintiff’s disability, relevant to lost earnings and compensation for medical expenses. The issue of continuing benefits before the administrative agency necessarily turned upon whether Jose Verdugo had an ongoing disability after a certain date, which is a question of fact, as distinguished from a legal conclusion and a conclusion of mixed law and fact. We also find that the plaintiff had a full and fair opportunity to litigate the issue of ongoing disability in the 2006 WC proceedings. The plaintiff was represented by counsel, submitted medical reports, presented expert testimony, and cross-examined the defendants’ experts regarding the issue of whether or not there was an ongoing disability.

Obviously, the decision represented a major victory for the personal injury defendants, who not only had their exposure significantly limited, but also avoided the cost of expensive protracted litigation in New York State Supreme Court. The bigger picture, of course, is that the decision leaves open the possibility to other pertinent WCB determinations having an impact on the accompanying third-party liability actions. The court’s recent holding in Auqui begs the question, if the board rules that an individual is not working because he or she simply is not looking for work or attempting to re-enter the labor force through free vocational rehabilitation, then why should the individual be afforded an opportunity to be heard on the issue in New York State Supreme Court?

For workers’ compensation carriers and their defense counsel, the decision undoubtedly provides additional negotiating leverage inasmuch as the stakes in litigating degree of disability have been astronomically raised for compensation claimants. However, compensation carriers must keep in mind that their interests are often aligned with claimants with respect to the outcome of the claimants’ liability actions. Pursuant to Workers’ Compensation Law § 29, in the event that a claimant recovers in a third-party action, the compensation carrier is granted a lien on the amount of the recovery proceeds equal to the amount of past medical expenses and indemnity payments, with interest, subordinate to deduction for plaintiffs’ litigation expenses and attorney fees. See, e.g., Kelly v. State Ins. Fund, 60 N.Y.2d 131, 136 (N.Y. 1983). Depending on the value of the compensation carriers’ lien and the status of the plaintiffs’ third-party action, it may actually be in the workers’ compensation carrier’s best interest to settle rather than take an issue to a full and final decision before the board.

For more information on how this may impact your business, please contact:

• Paul J. Kilminster (516.281.9871; pkilminster@goldbergsegalla.com)
• Damon M. Gruber (716.566.5491; dgruber@goldbergsegalla.com)
• Sean P. Beiter (716.566.5409; sbeiter@goldbergsegalla.com)
• Caroline J. Berdzik (609.986.1314; cberdzik@goldbergsegalla.com)
• Matthew C. Van Vessem (716.566.5476; mvanvessem@goldbergsegalla.com)
• Or another member of the Goldberg Segalla Labor and Employment Practice Group.