California: The Death of a Settlement

Settlement is a highly sought-after form of resolution of any given conflict. This is especially true in workers’ compensation cases. Litigators negotiate diligently to agree on terms that can be construed as a “win-win” for all. Thereafter, with a sigh of relief, they present their hard work, usually in the form of a Compromise and Release (C&R) or Stipulations With Request for Award to a conference judge or a “walk through” judge for approval.

Many attorneys are surprised when the judge studiously reviews the documents presented for adequacy, and requests to see the medical reports upon which the settlement was based. Isn’t it enough that the parties, represented by a highly competent attorney, have spent untold hours poring over medical reports, benefit printouts, and other documents to ensure a good result for their client? Why does the judge have to weigh in as well? The answer is quite simple. That is what the workers’ compensation judge (WCJ) is required to do under the law. Parties who are not ready for judicial scrutiny of their settlement should hold off presenting their documents to the judge. Although, as discussed below, there are issues with doing that as well.

I. Judge’s Mandate to Review Settlement for Adequacy

Unlike the civil court arena, WCJs are required to review settlements for adequacy. This mandate is set forth in WCAB Regulation § 10700 (now consolidated, and formerly known as regulations § 10870 & § 10882) which states as follows:

8 CCR § 10700(b). Approval of Settlements.

"The WCAB shall inquire into the adequacy of all Compromise and Release agreements and Stipulations with Request for Award and may set the matter for hearing to take evidence when necessary to determine whether the agreement should be approved or disapproved, or issue findings and awards." (Emphasis added.)

II. Basis to Set Aside Settlements

Labor Code § 5803 allows the WCAB continuing jurisdiction to take action on a document even after it has been approved. However, before doing so, the WCJ must give all parties notice and an opportunity to be heard (i.e., their due process rights) on the issue. This must be done before determining whether good cause exists to set aside the order approving the settlement document. Since there is no legislative definition as to what constitutes “good cause” to set aside an agreement, the WCJ relies on case law for that definition. Generally, fraud, duress and mutual mistake are considered “good cause” to set aside stipulations. (See Draper v. WCAB (1983) 147 Cal. App. 3d 502, 48 Cal. Comp. Cases 748.) However, other considerations fall into this category as well, such as procedural irregularities or incompetence. (See Smith v. WCAB (1985) 168 Cal. App. 3d 1160, 50 Cal. Comp. Cases 311.)

III. Does the Death of the Applicant Qualify as Good Cause?

Maybe. In the case of Chavez v. IAC (1958) (Supreme Court En Bank) 49 Cal. 2d 701, 23 Cal. Comp. Cases 38, the injured worker died after a C&R was executed but before WCJ approval. Defendant argued that after applicant’s death, there was a material change in the consideration agreed upon by the parties, and it moved to rescind the C&R. The WCJ agreed with defendant’s argument and refused to approve the agreement, which action was ultimately upheld by the California Supreme Court.

The Supreme Court stated,

“A party to a contract may rescind if the consideration fails in a material respect for any cause (Civ. Code, §1689, subd. 4) and it thus appears that a party may rescind a contract otherwise valid, when the consideration in whole or in part fails before the contract has been fully performed.”

The Court majority affirmed the decision of the WCAB to set aside the C&R.

IV. Does WCJ Have Discretion to Approve C&R After Applicant’s Death?

Maybe. In the case of Light v. Summit Drilling (1979) 44 Cal. Comp. Cases 1083 (WCAB en banc), the injured worker died after his C&R was executed but before the WCJ approved the settlement. Defendant raised the same argument as that raised by defendant in the Chavez case, that Applicant’s death constituted lack of consideration, and therefore the C&R should not be approved. Nevertheless, the WCJ’s approval of C&R was upheld by the Appeals Board.

In affirming the WCJ’s approval of the C&R, the Appeals Board interpreted the holding in the Chavez case to mean that the WCAB has discretion as to whether to approve a C&R that was executed prior to, but not approved until after, applicant’s death. The WCAB explained:

“The employee’s dependents contend that although the employee died, there was still adequate consideration to support the compromise. While this may be true, it is not controlling on the question of the effectiveness of the unapproved compromise or the question of the propriety of the Commission's refusal to approve it in view of section 5001 of the Labor Code. That section provides: … No release of liability or compromise agreement is valid unless it is approved by the Commission, a panel, commissioner or referee. (Chavez v. I.A.C., 23 Cal. Comp. Cases 38, 39 (1958) (Emphasis Added.)

“The wording of the majority opinion appears to leave the approval or disapproval of a compromise agreement after the death of an applicant to the discretion of the Appeals Board.

“This view of Chavez is taken in all three treatises on California workers' compensation law.”

Although alternate readings of Chavez might include a requirement to set aside a C&R when the applicant dies before the WCAB has approved the settlement, it appears to be the consensus of the authors of “all three treatises on California workers’ compensation law” that “this view of Chavez” is the correct one. (See Light v. Summit Drilling (1979) 44 Cal. Comp. Cases 1083 (Appeals Bd. en banc.) “This view of Chavez” being that it is in the judge’s discretion as to whether a C&R should be approved after the applicant dies, but before the Judge has issued an Order Approving.

V. Good Cause Depends upon the Facts of Each Case (Ramirez)

Even if the WCJ does have discretion as to whether a settlement document should be set aside, exercise of that discretion is clearly dependent upon the unique facts of each case.

In the recent Noteworthy Panel Decision (NPD) of Ramirez v. Plugin Digital Printing, 2019 Cal. Wrk. Comp. P.D. LEXIS 516, the following chronology of events took place:

On 7/28/2015, applicant, a machine operator, sustained an accepted specific industrial injury to his dead, brain, legs, back, arms & psyche.

After many months of struggling to put together a Compromise and Release (C&R) that both sides could accept, on 8/24/2017, defense counsel sent applicant attorney a proposed C&R.

On 9/5/2017, applicant and his attorney both executed the C&R but failed to return the document to defense.

Several days later, on 9/12/2017, applicant attorney informed defendant that the Centers for Medicare and Medicaid Services (CMS) had requested additional information in order to approve the “Medicare Set Aside” provision.

On 11/19/2017, applicant died from non-industrial causes. At that time, applicant attorney had not yet returned the C&R to defendant.

Almost a month later, on 12/7/2017, applicant attorney returned the C&R to defendant to execute and to seek approval from the Appeals Board. Although applicant attorney knew that his client had died, he failed to inform defendant of this critical development.

On 12/20/2017, defendant executed the C&R, still unaware that Mr. Ramirez had died. Defense obtained an Order Approving C&R from the WCJ the following day.

When defendant became aware that applicant had died prior to approval of the C&R, defendant filed a Petition to Set Aside C&R on 8/9/2018, which applicant attorney objected to on 8/21/2018.

At the trial on the Petition to Set Aside C&R on 9/9/2019, the sole issue was “Did good cause exist to set aside the C&R dated 12/21/2017?” The WCJ determined that there was good cause to set aside the C&R and this finding was affirmed by the WCAB. The Judge distinguished the facts in Ramirez with the facts in the Light case, supra, by noting that in Light, all of the parties had executed the agreement prior to applicant’s death. That was not true in the instant case. In Ramirez, only the applicant signed off on the C&R before his death. The document was forwarded to defense counsel, who executed the document, without being told that the applicant had died. The WCAB explained,

“What is important in this case is there was a change in circumstance prior to the document being fully executed, the applicant died. Defendant was not aware the applicant had passed when they executed the C&R. Defendant should not be penalized for lack of knowledge of a pivotal fact. When the applicant passed away prior to the execution of the C&R, defendant's obligation for future medical care ceased to exist at which point defendant's liability changed. Defendant would have had the right had they known all the facts to not sign the settlement documents.

If we were to allow a settlement to be enforceable despite a material change in circumstances prior to final execution, it would encourage parties to purposely conceal facts which render a settlement void had they been brought to light.”

VI. Good Cause Depends upon the Facts of Each Case (Lizzarraga)

The facts in Ramirez are almost identical to the facts in the writ denied case of Lizzarraga v. WCAB (2008) 73 Cal. Comp. Cases 1463 (writ den.). As in Ramirez, the applicant and his attorney signed the C&R, but the applicant died before the parties obtained CMS approval regarding the “Medicare Set Aside” provision of the C&R. The WCJ in Lizzarraga approved the C&R for $100,000. Commissioner Caplane voted to affirm the judge’s decision. However, the WCAB majority decided there was good cause to set aside the C&R.

In Lizzarraga, the applicant attorney insisted that the C&R should be approved. The parties had agreed as to all terms of the settlement. The fact that applicant had died and that there was obviously no longer a need of medical care, approval of the CMS for the “Medicare Set Aside” provision was completely irrelevant. The case went to trial. Relying on applicant’s argument, the WCJ approved the C&R, finding in part that “the parties had made a binding C&R prior to Applicant’s death.” The WCJ explained that “acceptance of the Medicare set-aside by Medicare and WCAB approval of the C&R were ‘conditions subsequent’ that did not preclude formation of a binding contract.”

A majority of the WCAB overturned the WCJ’s decision and stated:

“Here, applicant signed the compromise and release form prepared by defendant in accordance with the requirements of LC 5003. However, the form was never signed by anyone on behalf of the defendant. This was for good reason because the document was not yet complete. The Medicare set aside provision that was being prepared was material to both defendant's potential liability and the consideration that applicant would receive. There could not be a complete meeting of the minds on all material aspects of the compromise and release until that provision was concluded. This required the approval of Medicare, which had not yet been obtained at the time of applicant's death. Thus, there was not a complete agreement to which defendant could assent and there was no "duly executed" agreement to present to the Appeals Board for approval."

Commissioner Caplane dissented in the Lizzarraga case and stated she would have upheld the WCJ’s determination to approve the C&R as follows:

“Indeed, it has been recognized that a defendant's signature is not required on the compromise and release form if there is other substantial evidence of its agreement to the terms of the compromise and release. (CNA Insurance Companies v. Workers' Comp. Appeals Bd. (Barnes) (1997) 62 Cal.Comp.Cases 1143 (writ den.) [lack of defendant's signature on the compromise and release document was not a "defect precluding approval" when it was transmitted by defendant to the WCAB for approval with a letter signed by the defendant].)”

VII. Commentary

The primary “take-away” from this discussion is to be aware that, although the WCJ has discretion on this issue, the result will be largely dependent on the facts of any given case, and how those facts are applied to the relevant law. Judges take great care in reviewing the law and the evidence, not only for settlement documents, but for all issues.

As noted, above, both the California Supreme Court and the WCAB Commissioners felt this issue was of such significance that an en banc decision was issued in both forums. However, the judiciary, during the evolution of case law on this issue, has looked to different legal concepts upon which to base their decisions. All of the legal opinions give substantial ammunition to both sides of this debate. Thus, whenever there is such a wide array of scholarly discourse on any given issue such this, practitioners would be wise to read and study not only the majority opinions in each of these cases, but the dissenting opinions as well, as both hold key and distinctive analyses as to how this issue should be resolved.

Practitioners should check the subsequent history of any cases before citing to them.

Any information or opinions contained in this commentary are not necessarily endorsed by LexisNexis® or its affiliates.

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