Opinion
BOARD No. 03113387
Filed: February 25, 1998
AMENDED REVIEWING BOARD DECISION
(Judges Fischel, Levine and Wilson).
APPEARANCES
Lee M. Berger, Esq., for the employee.
Harry J. Silverman, Esq., for the insurer at hearing.
John E. Coyne, Esq., for the insurer on review.
This employee's appeal presents the following question of law: whether the penalty provisions that attach for the failure to timely pay a lump sum agreement, executed and approved on December 20, 1991, are those in effect as of that date, or those made effective and deemed retroactive on December 23, 1991? We agree with the employee that the former penalty provisions apply. The present decision amends and replaces the reviewing board decision in this case filed on December 24, 1997.
The parties filed cross-motions for reconsideration. We allow the employee's motion. We deny the insurer's motion.
The employee and the insurer entered into a § 48 lump sum agreement redeeming liability for an April 12, 1987 industrial injury; the agreement was approved by an administrative judge on December 20, 1991. (Dec. 4.) On January 6, 1992, the employee, through her attorney, demanded payment of the agreed amount under the lump sum, along with a penalty pursuant to departmental regulation 452 CMR 1.05(5) for the insurer's failure to pay the agreed sum within fourteen days of its notice thereof. (Employee's Exhibit 2, attachment B.) The insurer paid $5,800.00 due to the employee under the lump sum agreement on January 16, 1992, twenty-seven days after receiving notice of the approved agreement at the December 20, 1991 conference. (Dec. 4; Employee's Ex. 2, attachment C.) Fifty four days after receiving notice, the insurer sent the employee a check for $200.00, which it calculated to be the penalty due for late payment of the lump sum under the newly amended version of § 8(1), made effective on December 23, 1991. (Dec. 4.; Employee's Ex. 2, attachment G, H.) The employee disputed that this was the correct penalty due, and brought the present claim. (Dec. 1.)
The insurer initially sent a check to the employee for the penalty due pursuant to the regulation. (Employee's Ex. 2, attachment E.) However, before the employee could negotiate the check, the insurer stopped payment. (Employee's Ex. 2, attachment F, H.) We note that the employee offered to have the amount due under the old penalty escrowed until such time as the dispute over the applicable penalty could be resolved. The insurer declined the offer. (Employee Ex. 2, attachment F.)
The dispute revolved around the difference in the penalty provisions effective as of the date of the lump sum approval, and those which became effective, and deemed retroactive in application, on December 23, 1991. The employee claimed that 452 CMR 1.05(5) applied, which was in effect as of the December 20, 1991 lump sum approval, having been made effective on August 17, 1990. That regulation stated, in its entirety:
Failure to pay benefits within fourteen (14) calendar days of knowledge from any source that such benefits are due shall result in application of a penalty of two (2) times the average weekly wage in the commonwealth for the first period of fourteen (14) days, and of one (1) times such wage for each additional period of seven (7) days, that has elapsed between the date of the insurer's knowledge that such benefits are due and the date such benefits are paid. Unless the penalty due is paid no later than fourteen (14) days after the insurer's receipt of written notice from the employee or his designee requesting such payment, the penalty shall continue until the penalty is paid. With respect to public employers that have not provided for the payment of compensation by insurance pursuant to M.G.L.c. 152, § 69, delivery within fourteen (14) days to said employee or designee of an official request for the issuance of a check to the appropriate authority made by the employer shall constitute timely payment.
An earlier version of 452 CMR 1.05(5), made effective on October 28, 1988.
(Dec. 4-5.) The insurer, on the other hand, contended that the new provisions of § 8(1), as amended by St. 1991, c. 398, § 23, applied. That section reads, in pertinent part:
Any failure of an insurer to make all payments due an employee under the terms of an order, decision, arbitrator's decision, approved lump sum or other agreement, or certified letter notifying said insurer that the employee has left work after an unsuccessful attempt to return within the time frame determined pursuant to paragraph (a) of subsection (2) of this section within fourteen days of the insurer's receipt of such document, shall result in a penalty of two hundred dollars, payable to the employee to whom such payment were required to be paid by the said document; provided, however, that such penalty shall be one thousand dollars if all such payments have not been made within forty five days, two thousand five hundred dollars if not made within sixty days, and ten thousand dollars if not made within ninety days.
The prior version of § 8(1) had included generalized language addressing the insurer's timely payment of benefits: "The insurer remains at all times obligated to pay all benefits due the employee under this chapter within fourteen days of knowledge from any source that such benefits are due." No penalty provision was included as an enforcement mechanism in the old § 8(1), which was added by the above-quoted regulation.
(Dec. 5-6.) This amendment to § 8(1) was specifically deemed procedural and retroactive in application under the "outside" section, St. 1991, c. 398, § 107. The insurer therefore claimed that the penalty due was $200.00, as the lump sum had been paid within forty-five days of its receipt of the document, and it tendered payment of that amount on February 12, 1992. (Dec. 4.)
As a result of a hearing at which the employee testified, and the parties submitted briefs on the legal issues, the judge determined that the insurer was correct. The judge noted that the regulation on which the employee based her claim had been questioned by the reviewing board in Dennen v. Addison Gilbert Hospital, 5 Mass. Workers' Comp. Rep. 289 (1991). (Dec. 8-9.) The judge found that the right to the penalty did not accrue until the insurer defaulted on its timely payment of the lump sum agreement, after fourteen days had passed since the December 20, 1991 conference where the agreement was approved. (Dec. 9.) Under that analysis, the operative date involved in the case was January 3, 1992, well past the December 23, 1991 effective date of the new penalty provisions of § 8(1). As a result the judge concluded that the appropriate penalty was the $200.00 that the insurer had already paid, and he denied the employee's claim for the penalty under 452 CMR 1.05(5). (Dec. 10-11.) The employee appeals to the reviewing board.
The regulation at issue here was not the subject of the Dennen decision, and its criticism of the regulation is purely editorial. See Dennen at 303, n. 18.
The judge also found that the application of the new of the new penalty provisions did not controvert the constitutional rights of the employee. (Dec. 10.) We do not reach the constitutional question.
Part I: The Regulatory Penalty Applies
The employee wages a multifaceted attack on the decision, arguing contract, constitutional, "stage of proceedings," and other statutory construction theories. We think that the employee prevails under a combination of contract and "stage of proceedings" approaches.
Another argument that we do not need to reach is that the new § 8(1) penalty is "compensation."
We begin with the fundamental precept that a § 48 lump sum agreement is a contract, subject to the appropriate common law analyses. See L. Locke, Workmen's Compensation § 417, at 494 (2d ed. 1981); and see, e.g., Ferreira v. Arrow Mutual Liability Ins. Co., 15 Mass. App. Ct. 633, 635 (1983) ("Barring mutual mistake, fraud or other principles of equity, we believe that when an instrument with the finality of an agreement for redeeming liability has been executed and filed with the Division, presented to the single member for approval at a hearing conference, and recommended for approval by that member, the insurer may no longer unilaterally rescind the agreement."); Rebeiro v. Travelers Insurance Co., 27 Mass. App. Ct. 1116 (1989).
"As a general rule, the law existing at the time an agreement is made necessarily enters into and becomes part of the agreement."Feakes v. Bozyczko, 373 Mass. 633, 636 (1977). "Amendments enacted after execution are not incorporated into an agreement unless the contract provisions 'clearly establish that the parties intended to incorporate subsequent enactments into their agreement.'" Mayor of Salem v. Warner Amex Cable Communications Inc., 392 Mass. 663, 666-667 (1984), quoting id. In the present case, the lump sum agreement contains no reference to any understanding of the parties that the thereafter-enacted penalty provisions were to govern the contract in the event of the statutory "default": failure to pay within fourteen days of the approval conference where the insurer had actual knowledge that the benefits were due. (Employee Exhibit 2, attachment A.) Moreover, at the hearing the employee testified that her understanding, through counsel, was that she would be paid within fourteen days, or she would receive the penalty available under 452 CMR 1.05(5). (Tr. 8-12.) We see no basis for interpreting this lump sum agreement, itself, as incorporating into it a change in the law that occurred after it had been finalized — fully executed and approved by an administrative judge after a § 48 conference.
The insurer counters with the argument that the employee's penalty rights did not arise until such time as there was a "default," January 3, 1992. (Dec. 9.) The insurer cites no Massachusetts case for this proposition. Analogous Massachusetts case law on contract disputes points to the application of the penalty provisions in effect at the time of the execution and approval of the lump sum agreement.
In Frank Kumin Co. v. Marean, 283 Mass. 332 (1933), a creditor of a corporation attempted to enforce liability on the directors of the corporation under a statute in effect as of the execution of the note, but repealed by the time the creditor filed suit for default. The court held that the enforcement law as it stood at the time of creation of the obligation was "'something which the creditor had a right to consider and to rely upon when the debt was created. It constituted an implied term of every contract between the corporation and its creditors.'" Id. at 334, quotingE.S. Parks Shellac Co. v. Harris, 237 Mass. 312, 319 (1921). The right to the enforcement cause of action created by that repealed statute had become fully perfected and vested prior to its repeal.Id. at 335. Just as in Kumin, the fact that there was a later-occurring event — non-payment within fourteen days — prompting resort to the enforcement mechanism in the present case, did not affect the vesting of that right as of the execution of the contract. The penalty provided in the regulation was an "implied term" of the lump sum agreement. See Kumin, supra. Similar statements of the law are found in Hanscom v. Malden Melrose Gas Light Co., 220 Mass. 1, 7 (1914) ("The law as to the enforcement and effect of a contract at the time it is made cannot be changed to the detriment of either party. Such law enters into the terms of the contract and becomes a part of its obligation."), and Commissioner of Insurance v. Massachusetts Accident Co., 310 Mass. 769, 771 (1942) (a clause for the acceleration of rent in a lease upon default "must be construed as of the time of its execution and not as of the time of the breach").
The cases from foreign jurisdictions cited by the insurer are distinguishable in that they all involved existing and ongoing activities in which an amended statute was held to apply to a precipitating event occurring after such statute's effective date. See Holmes v. State Accident Insurance Fund, 589 P.2d 1151, 1152-1153 (Or.App. 1979) ("[R]ights and liabilities of persons affected by an event are defined and measured by the statutes in effect at the time of the event and the adjudication of those rights and liabilities is accomplished under the statutes in effect at the time of the adjudication."); Aetna Life Insurance Company v. Washington Life and Disability Guaranty Ass'n, 520 P.2d 162, 170 (Wash. 1974) (application of amended assessments on policyholders to cover insolvent insurers' pre-existing claims upheld as order of liquidation was precipitating event, rendering amendment prospective); Allied Corp. v. Acme Solvents Reclaiming, Inc., 691 F. Supp. 1100, 1110-1111 (N.D.Ill. 1988) (ongoing remedial actions in environmental clean up, for which plaintiff sought recovery from defendant, subject to amendment requiring EPA approval from effective date onward). The present case had reached final settlement, payment of which was ordered by the administrative judge's approval of that settlement.
Therefore, we consider that the penalty provisions in existence at the time of the execution and approval of the lump sum agreement were an implied part of that agreement, and were not replaced by the penalty statute that became effective after the contract's execution and approval.
The insurer argues that the retroactive effect of the amended § 8(1), through the application of the "outside" section, St. 1992, c. 398, § 107, means that the new statute must be applied to this claim. (Dec. 7-9.) However, this broad general rule has exceptions, one of which is the so-called "stage of proceedings" rule:
There are, of course, limitations to the extent to which even procedural or remedial statutes will operate retroactively. At the extreme, no "retroactive" procedural statute could apply to a case which has been closed, i.e., has been affirmed on appeal or has not been appealed within the time allowed for appeal. But even as to cases which are still pending in the courts, there will be some point at which it becomes inappropriate to apply newly enacted procedural changes.
City Council of Waltham v. Vinciullo, 364 Mass. 624, 627 (1974).
Here, the approved lump sum agreement was the final stage of the litigation process regarding liability for indemnity payments. The dispute had reached a conclusion by way of settlement; no party could appeal from or rescind the agreement, in the absence of narrow equitable grounds, such as mutual mistake, not relevant to the present case. See Ferreira, supra. The only thing left to the employee's claim for weekly benefits was the insurer's delivery of the check. That obligation arose with the execution and approval of the agreement, accomplished on December 20, 1991. The employee's right to the penalty mechanism provided by 452 CMR 1.05 (5) was inherent in the agreement. Notwithstanding its procedural label, the December 23, 1991 change in that mechanism should not be construed to infiltrate that already completed final stage of this proceeding. Accordingly, we reverse the decision.
We note that medical and vocational rehabilitation benefits remain open under § 48. However, we do not consider that to be relevant or germane to the case at hand. Compare Sliski's Case, 424 Mass. 126, 130 (1997) (in determining whether retroactively to apply a statute amending § 51, interests in finality not a consideration because periodic reexaminations of wage projections over time a virtual certainty; "a determination of Sliski's entitled benefits may never be final").
Part II: The Regulatory Penalty Is Within The Statutory Grant Of Authority And Passes Constitutional Muster
Having determined that the regulatory penalty in effect on December 20, 1991 should be applied in this case, we must now consider whether the department had the authority to promulgate such a penalty regulation, without the explicit legislative delegation of power to do so. See G.L.c. 152, § 8(1) (St. 1985, c. 572, § 21) (imposing fourteen day obligation to pay benefits; no penalty or enforcement mechanism mentioned). While neither party raised this constitutional question, we deem it sufficiently important to address. See Phillip's Case, 41 Mass. App. Ct. 612 (1996) (the board, in its discretion, may pass on issues not previously argued before an administrative judge). We requested and received supplemental briefs from the parties.
Civil penalties, such as the one at issue in the present case, are enacted by the exercise of legislative power, which may be delegated to a certain extent. "The penalty provision is a familiar device conferred on administrative bodies to assist them in the performance of their duties." Opinion of the Justices to the Senate, 375 Mass. 795, 819 (1978). In that Opinion of the Justices, the court determined that the legislature properly could empower the State Ethics Commission to impose a civil penalty of not more than $1,000 for each violation of G.L.c. 268A. Id. The court considered the matter in terms of the constitutionality of such delegation under the Declaration of Rights of the Massachusetts Constitution, art. 30, which states:
In the government of this commonwealth, the legislative department shall never exercise the executive and judicial powers, or either of them: the executive shall never exercise the legislative and judicial powers, or either of them: the judicial shall never exercise the legislative and executive powers, or either of them: to the end that it may be a government of laws and not of men.
The court concluded, "The delegation of power to the commission to impose a civil penalty of not more than $1,000 for each violation is not, by itself, an excessive delegation of legislative power.Commonwealth v. Diaz, 326 Mass. 525, 528-530 (1950). SeeCommonwealth v. Racine, 372 Mass. 631 (1977)." Opinion of the Justices, 375 Mass. at 819-820.
In Commonwealth v. Diaz, 326 Mass. 525 (1950), the court addressed the constitutionality of criminal penalties formulated by an administrative body. The court held that the administrative body could impose criminal penalties in amounts up to $500 per violation, which penalties were "within limits definitely prescribed by the Legislature." Id. at 529. The court admonished, however:
The authority which may be granted to a local governing body to fix penalties, even when the maximum limit is prescribed, is not unrestricted. Such bodies cannot be granted a roving commission to establish within broad limits such penalties as they see fit. That is essentially legislative power which cannot be delegated. The question is one of degree.
Id. at 530.
On the basis of the Diaz holding and reasoning, incorporated for civil penalties through the Opinion of the Justices to the Senate,supra, we address whether this administrative body has authority to set penalties when the legislature has not explicitly done so, or whether the penalty regulation at issue here violates art. 30.
The regulation was responsive to G.L.c. 152, § 8(1) (St. 1985, c. 572, § 21) as it stood in 1988. That section stated, in pertinent part: "The insurer remains at all times obligated to pay all benefits due the employee under this chapter within fourteen days of knowledge from any source that such benefits are due." See also G.L.c. 152, § 17 (containing similar, but more general, fourteen day obligation language). Those statutes contained no explicit delegation of power to prescribe a penalty for violation of the fourteen day statutory obligation.
The employee argues that the commissioner of the department of industrial accidents possesses explicit authority to promulgate rules and regulations consistent with the Act, for carrying out the functions of the department, G.L.c. 152, § 5, and that authority includes the power to prescribe penalties. "[T]he Legislature may delegate to a board or an individual officer the working out of the details of a policy adopted by the Legislature." Diaz at 527. We agree with the employee that one of the fundamental policies underlying the Act is the prompt payment of compensation benefits. "The continued objective of the 1991 Reform procedures for payment of compensation is to put money in the hands of the injured worker or his dependents as soon as possible." Nason Wall, supplementing Locke, Workmen's Compensation, § 4.1 (1995 edition). Therefore, the lack of an explicit delegation of penalty-making authority in either § 17 or the applicable version of § 8(1), the employee contends, does not foreclose the authority of the commissioner to promulgate such penalties.
The employee's citation to Commonwealth v. Racine, 372 Mass. 631 (1977), the other case cited in the above-quoted section ofOpinion of the Justices to the Senate, supra, lends support to her contention. The issue in Racine was whether a penalty regulation within the lead paint poisoning prevention program of the Department of Public Health was an improper exercise of legislative power by that administrative agency. Id. at 635. The regulation provided that violations of the lead paint law (G.L.c. 111, §§ 190-199) be treated as violations of the State Sanitary Code, "and further provide[d]: 'Any person who shall fail to comply with any order issued pursuant to the provisions of this code shall upon conviction be fined not less than ten nor more than five hundred dollars. Each day's failure to comply with an order shall constitute a separate violation.'" Id. at 634. It was this rolling daily penalty that the defendant contended was unconstitutional under art. 30, because it was not specifically authorized in the statute. Id. at 635. The court disagreed:
[A]t the time [the lead paint statute] was enacted, there was . . . an existing body of administrative regulations in the State Sanitary Code. We assume that the Legislature was aware of the contents of that code, including its provision for daily offences, when it enacted [the lead paint statute,] G.L.c. 111, §§ 190-199. The contents of that code are substantial evidence that the legislative reference to it in § 198 included therein an authority similarly to define offenses under the lead paint statute.. . .
Since such daily penalties were in the code as it existed at the time of enactment of §§ 197, 198, the legislative intent must be ascertained on the basis of a presumed legislative knowledge of the code provisions, and the Legislature's intent as indicated in the statute, to make those provisions part of the enforcement scheme.
Racine at 636-637. The court held, therefore, that the challenged daily penalty regulation was within the statutory grant of authority. Id. at 639.
The employee proposes that we apply Racine to the present case in the following manner. In 1989, when the legislature amended the enabling statute for the department's rulemaking authority (G.L. c. 152, § 5), the penalty regulation — in a slightly different form — was already in effect, having been made effective on October 28, 1988. See St. 1989, c. 529, § 5, approved November 17, 1989. At that time "the Legislature . . . made no effort to change the underlying statutory scheme in a manner which would suggest that the expression of regulatory power [the penalty regulation] was inconsistent with legislative intent." Racine at 637. The employee contends that, because the legislature impliedly considered the penalty regulation to be "within the ambit of the enabling statute," the regulatory penalty should be considered valid. Racine at 635.
See supra, note 3.
We are convinced that the employee's application of Racine is meritorious. The legislature's 1989 amendment to G.L.c. 152, § 5, although more general than the analogous legislative enactment inRacine, carried with it the presumption that the legislature was cognizant of the regulations promulgated thereunder. Racine at 636-637; Mathewson v. Contributory Retirement Appeal Board, 335 Mass. 610, 614 (1957). Therefore, we conclude that the version of Regulation 1.05(5) in effect on November 17, 1989, when the amendment to § 5 took effect, was impliedly approved by the legislature. That version provided for the penalty to continue to run until such time that it was paid:
The 1989 amendment simply added a filing requirement for regulations to become valid, and its substance is in no way relevant to the penalty under discussion.
Failure to pay benefits within fourteen (14) calendar days of knowledge from any source that such benefits are due shall result in application of a penalty of two (2) times the average weekly wage in the commonwealth for the first period of fourteen (14) days, and of one (1) times such wage for each additional period of seven (7) days, that has elapsed between the date of the insurer's knowledge that such benefits are due and the date of the payment of this penalty.
Moreover, the similarities between Racine and the present case are noteworthy. The lead paint statute in Racine, which impliedly approved the daily penalty provision of the State Sanitary Code, did not specifically refer to that daily penalty provision. The enabling statute for the State Sanitary Code, G.L.c. 111, § 127A, did not authorize daily penalties for each offense. Racine at 633-635. The Racine court apparently was not troubled by this lack of specific legislative authorization for the open-ended regulatory penalty. Moreover, the amount of the rolling penalty in Racine was wholly within the control of the landlord, by fixing the offense. This is analogous to the payment of the penalty by the insurer in the present case, which would have stopped the running of that penalty. See n. 2, supra. We think that the present case meets the standards of permissible legislative delegation described in Diaz, supra, as applied by Racine.
As a result, we conclude that the employee is entitled to the 1.05(5) penalty due for the insurer's failure to pay the benefits due under the lump sum agreement until twenty-seven days after receiving notice of that approved agreement on December 20, 1991, and for failing to pay that penalty. (Dec. 4.)
Accordingly, we reverse the decision. We conclude that the Regulation 1.05(5) penalty provisions apply to this case and are enforceable, as being within the statutory grant of authority. SeeRacine, supra at 639. However, we think that the extent of the continuing penalty should be mitigated under the circumstances of the case. As of the decision of the administrative judge, which denied the employee's claim for the 452 CMR 1.05(5) penalty, the insurer can no longer be responsible for that penalty being due under the regulation. It was entitled to rely on the merits decision of a tribunal of competent jurisdiction in maintaining its position that it was only responsible for the $200.00 penalty paid on February 12, 1992. We conclude, therefore, that the 452 CMR 1.05(5) penalty must be tolled as of July 29, 1994, the filing date of the hearing decision. Cf. G.L.c. 152, § 17.
So ordered.
_____________________ Carolynn N. Fischel Administrative Law Judge
____________________ Frederick E. Levine Administrative Law Judge
___________________ Sara Holmes Wilson Administrative Law Judge
CNF: FILED: February 25, 1998