                                                                                            November 25 2008


                                            DA 06-0734
                      IN THE SUPREME COURT OF THE STATE OF MONTANA
                                            2008 MT 394


ROBERT FLYNN and CARL MILLER, Individually
and on Behalf of Others Similarly Situated,

               Petitioners and Appellees,

         v.

MONTANA STATE FUND,

               Respondent/Insurer and Appellant,

         and

LIBERTY NORTHWEST INSURANCE
CORPORATION,

               Intervenor and Appellant.


APPEAL FROM:            Workers’ Compensation Court
                        Cause No. WCC 2000-0222
                        Honorable James Jeremiah Shea, Presiding Judge

COUNSEL OF RECORD:

                 For Appellants:

                        Steven W. Jennings; Crowley, Haughey, Hanson, Toole & Dietrich,
                        PLLP; Billings, Montana

                        Larry W. Jones, Law Offices of Larry W. Jones; Missoula, Montana

                        Shane McGovern, Geoffrey R. Keller; Matovich & Keller, P.C.;
                        Billings, Montana

                        Bradley J. Luck; Garlington, Lohn & Robinson; Missoula, Montana

                 For Appellees:

                        Rexford L. Palmer; Attorneys Inc., P.C.; Missoula, Montana


                                                    Submitted on Briefs: January 23, 2008

                                                                Decided: November 25, 2008
Filed:
                        __________________________________________
                                          Clerk
Justice Jim Rice delivered the Opinion of the Court.

¶1     Appellants Montana State Fund, Liberty Northwest Insurance Corp., and certain

“Common Fund Insurers” (collectively State Fund) appeal from the order of the Workers’

Compensation Court (WCC). We affirm in part and reverse in part.

¶2     We restate the issues on appeal as follows:

¶3     1. Did the WCC err by refusing to apply judicial decisions retroactively to only

claims in “active” litigation?

¶4     2. Did the WCC err in its final definition of a “settled” claim?

¶5     3. Did the WCC err when it concluded that the terms “closed” and “inactive”

were not included in our Schmill II directive?

¶6     4. Did the WCC err by refusing to impose a two-year limit on the retroactivity of

judicial decisions for workers’ compensation claims?

                  FACTUAL AND PROCEDURAL BACKGROUND

¶7     This is the second time this case has been before us.              In Flynn v. State

Compensation Ins. Fund, 2002 MT 279, 312 Mont. 410, 60 P.3d 397 (Flynn I), we held

that after a claimant successfully recovers social security disability benefits, thereby

allowing the State Fund or other workers’ compensation insurer to offset benefits paid to

the claimant, the insurer, pursuant to the common fund doctrine, must bear a

proportionate share of the costs and attorney fees incurred by the claimant in pursuing

social security benefits.   Flynn I, ¶¶ 16-18.       Accordingly, we reversed the WCC’s

judgment to the extent it declined to apply the common fund doctrine to Flynn’s request

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for reasonable apportionment of attorney fees. Flynn I, ¶ 18. On remand, the WCC

determined that the holding in Flynn I applied retroactively and that Flynn’s attorney was

“entitled to common fund attorney fees from claimants who benefited from the decision.”

That decision is not appealed here.

¶8     Thereafter, in Schmill v. Liberty Northwest Ins. Corp., 2005 MT 144, 327 Mont.

293, 114 P.3d 204 (Schmill II), we concluded that our decision in Schmill v. Liberty

Northwest Ins. Corp., 2003 MT 80, 315 Mont. 51, 67 P.3d 290 (Schmill I) applied

retroactively. However, in reliance on our decision in Dempsey v. Allstate Ins. Co., 2004

MT 391, 325 Mont. 207, 104 P.3d 483, we recognized that “retroactive application does

not mean that prior contrary rulings and settlements are void ab initio.” Schmill II, ¶ 17.

Rather, the policy of finality dictates that “‘retroactive effect of a decision . . . does not

apply to cases that became final or were settled prior to a decision’s issuance.’” Schmill

II, ¶ 17 (quoting Dempsey, ¶ 31) (ellipsis in original). We recognized that many “claims

are settled, closed, or inactive” but indicated that we could not determine from the record

which claims in the context of workers’ compensation law should be considered “final or

settled.” Schmill II, ¶ 19. Accordingly, we left “that initial determination to the WCC.”

Schmill II, ¶ 19. The WCC thereafter informed all parties involved in common fund

cases via email that it would “use Flynn as a general model for determining the final,

closed, or inactive issue” remanded in Schmill II, and invited their participation.

¶9     On September 29, 2006, the WCC issued its “order determining status of final,

settled, closed, and inactive claims” (Flynn Order). The WCC explained that our explicit

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direction in Schmill II was for it to determine the definition of “final” and “settled”

claims. The WCC stated that it would not define “closed” and “inactive” claims because

the Schmill II directive did not include those terms. The WCC defined a “final” claim as

a “claim in which a final judgment has been entered by the Workers’ Compensation

Court only if the claim is not currently pending on appeal.” This definition of “final” is

not an issue on appeal. In defining a “settled” claim, the WCC reasoned that § 39-71-

107(7)(a), MCA (2005), provided a “clear definition” of the term. Further reasoning that

it was not its function “to rewrite what the legislature has already defined,” the WCC

concluded that the statute’s definition defining a settled claim as “‘a department-

approved or court-ordered compromise of benefits between a claimant and an insurer or a

claim that was paid in full’ shall be the definition of a ‘settled claim.’” However, in a

recap of its holding at the end of its order, the WCC stated that “A SETTLED CLAIM is

a claim in which a department-approved settlement or court-ordered compromise of

benefits has been made between the claimant and insurer,” omitting the phrase “or a

claim that has been paid in full” which it had previously adopted in its analysis.

¶10    Eight days after the Flynn Order was issued we decided Stavenjord v. Mont. State

Fund, 2006 MT 257, 334 Mont. 117, 146 P.3d 724 (Stavenjord II). There, we overruled

a WCC order establishing “partial” retroactivity of our decision in Stavenjord v. Mont.

State Fund, 2003 MT 67, 314 Mont. 466, 67 P.3d 229 (Stavenjord I). Stavenjord II, ¶ 15.

We concluded that there is “no legal authority for ‘partial’ retroactive application” of

judicial decisions and stated that judicial decisions apply retroactively to “any and all

                                          4
open claims . . . .” Stavenjord II, ¶ 15 (emphasis in original). We stated that “open

claims” are those which are “still actionable, in negotiation but not yet settled, now in

litigation, or pending on direct appeal.” Stavenjord II, ¶ 15.

¶11    The State Fund appeals from the Flynn Order.

                               STANDARD OF REVIEW

¶12    We review the WCC’s conclusions of law for correctness. Schmill II, ¶ 11.

                                      DISCUSSION

¶13 1. Did the WCC err by refusing to apply judicial decisions retroactively to
only claims in “active” litigation?

¶14    State Fund argues that the WCC erred by rejecting its argument that “judicial

decisions can only apply retroactively to those claims that are currently in active

litigation.”   State Fund contends the WCC incorrectly interpreted our decision in

Dempsey, and posits that an inconsistency in language it detects between our opinion in

Dempsey and the U.S. Supreme Court’s opinion in Harper v. Va. Dept. of Taxation, 509

U.S. 86, 113 S. Ct. 2510 (1993), explained below, was unintended. Accordingly, State

Fund urges us to “formally adopt the exact Harper ‘on direct review’ language” as the

boundary of retroactivity.

¶15    In Dempsey, we established our current rule for the retroactivity of judicial

decisions and discussed the history of the issue, focusing on two United States Supreme

Court decisions: Harper and Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S. Ct. 349

(1971). Dempsey, ¶¶ 16-23. We explained that the Harper decision effectively replaced

Chevron Oil in federal courts, holding that federal law “must be given full retroactive
                                          5
effect in all cases still open on direct review. . . .” Dempsey, ¶ 23 (quoting Harper, 590

U.S. at 97, 113 S. Ct. at 2517). However, because each state is permitted to establish its

own rules for retroactivity, see Great N. Ry. Co. v. Sunburst Oil & Refining Co., 287 U.S.

358, 364-66 (1932), state courts had continued to follow the flexible Chevron Oil

approach that required retroactivity unless one of three exceptions was met.

¶16    We reached a compromise in Dempsey between the strict Harper rule and the

flexible Chevron Oil rule, holding that “all civil decisions of this Court apply

retroactively to cases pending on direct review or not yet final, unless all three of the

Chevron factors are satisfied.”1 Dempsey, ¶ 31. We also concluded that, for reasons of

finality, the “retroactive effect of a decision does not apply . . . to cases that became final

or were settled prior to a decision’s issuance.” Dempsey, ¶ 31.

¶17    State Fund asserts that the difference between Harper’s “open on direct review”

and Dempsey’s “pending on direct review or not yet final” was an unintended change for

which “this Court did not provide any reasoning . . . .” State Fund offers that this Court


1
 The three Chevron factors are:
       First, the decision to be applied nonretroactively must establish a new principle of
       law, either by overruling clear past precedent on which litigant may have relied or
       by deciding an issue of first impression whose resolution was not clearly
       foreshadowed. Second, it has been stressed that ‘we must . . . weigh the merits
       and demerits in each case by looking to the prior history of the rule in question, its
       purpose and effect, and whether retrospective operation will further or retard its
       operation.’ Finally, we have weighed the inequity imposed by retroactive
       application, for ‘where a decision of this Court could produce substantial
       inequitable results if applied retroactively, there is ample basis in our cases for
       avoiding the injustice or hardship by a holding of nonretroactivity.’
Dempsey, ¶ 21 (quoting Chevron Oil, 404 U.S. at 106-07, 92 S. Ct. at 355) (ellipsis in
original).
                                           6
“could not have predicted how its minor rephrasing of Harper could take on the

significance the WCC gave it in its Flynn Order” and therefore asks us to clarify our

Dempsey decision by adopting the exact language employed by the U.S. Supreme Court

in Harper.

¶18    However, contrary to State Fund’s perception that we did not consider the impact

of “rephrasing” the Harper rule, the language we used in Dempsey was not an accident.

We explained in Dempsey that the new rule on retroactivity was intended to be a

compromise between Harper and Chevron Oil and that, while we agreed with Harper’s

balancing of finality and fairness interests, we opted to not follow the exact Harper rule

because of “the compelling need for prospective application in limited circumstances.”

Dempsey, ¶ 27. Accordingly, we decline State Fund’s invitation to revise the statement

of retroactivity set forth in Dempsey and to adopt the exact Harper rule.

¶19    Alternatively, State Fund argues that our decision in Stavenjord II requires

modification of the Flynn Order. State Fund contends that under Stavenjord II the WCC

incorrectly rejected the argument made by State Fund in this case that “judicial decisions

can only apply retroactively to those claims that are currently in active litigation.” State

Fund invites us to make “judicial decisions retroactively applicable only to ‘open’

workers’ compensation claims” and to define “open” as “in negotiation but not yet

settled, now in litigation or pending on direct appeal”—the same language used in

Stavenjord II, ¶ 15. State Fund thus reasons that use of the language in Stavenjord II

would render the Flynn Order unnecessary.

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¶20    State Fund’s argument illustrates that there is an apparent conflict between our

decisions in Stavenjord II and Schmill II. Schmill II applied Schmill I retroactively to all

claims except those that are “final” or “settled,” Schmill II, ¶ 19, whereas Stavenjord II

retroactively applied Stavenjord I to all “open” claims. Stavenjord II, ¶ 15. While these

definitions are presumably different sides of the same coin, we can see the need for

clarity and consistency in the statement of the rule.

¶21    Schmill II was the first case which addressed the question of retroactivity for

purposes of workers’ compensation law and our intention there was to clarify the

application of the Dempsey rule in that context. Schmill II, ¶ 9. Stavenjord II did not

purport to expand upon or clarify the law with regard to retroactivity and no authority

was cited for its statement that Stavenjord I would apply to “open” claims. Stavenjord II,

¶ 15. Therefore, it was not our intention in Stavenjord II to alter our retroactivity analysis

as previously set forth by Dempsey and Schmill II and, in reality, Stavenjord created no

new law, but merely stated our retroactivity rule in an inverse fashion: “open” simply

meant “not final.” We therefore conclude that application of the retroactivity rule as

stated in Stavenjord II though stated inversely, conveyed the same meaning, and that the

Flynn Order is unaffected by our decision therein.           We reaffirm the retroactivity

principles set forth in Dempsey and Schmill II—applicable to cases not “final” or

“settled”—for purposes of this and future cases.

¶22    2. Did the WCC err in its final definition of a “settled” claim?




                                          8
¶23    State Fund next argues that if we maintain the Dempsey or Schmill II language

excluding “final” and “settled” claims from judicial retroactivity, then we should also use

the statutory definition of “settled” set forth in the analysis section of Flynn Order, rather

than as re-stated at the end of the Flynn Order. This would include the statutory language

defining settled claims as “paid in full.”      Appellees Robert Flynn and Carl Miller

(Flynn/Miller) argue that including “paid in full” claims as settled is “illogical” because

§ 39-71-107(7), MCA, is limited to the “purposes of [that] section.”

¶24    As previously noted, the Flynn Order set forth inconsistent definitions. The WCC

reasoned that “§ 39-71-107(7)(a), MCA, sets forth a clear definition of what constitutes a

‘settled claim.’” Reasoning that its function was not “to rewrite what the legislature has

already defined”, it concluded that “the language of § 39-71-107(7)(a), MCA (2005),

defining a ‘settled claim,’ as ‘a department-approved or court-ordered compromise of

benefits between a claimant and an insurer or a claim that was paid in full,’ shall be the

definition of ‘settled claim’ for purposes of this case.”       However, in contrast, after

discussing other issues, the WCC concluded its order by re-stating all of its holdings,

including on this issue: “[T]herefore, this Court orders: A SETTLED CLAIM is a claim

in which a department-approved settlement or court-ordered compromise of benefits has

been made between the claimant and insurer.”            Notably, this statement omits the

previously adopted statutory language which stated that “a claim paid in full” is a “settled

claim.”




                                          9
¶25    The WCC reasonably relied upon the definition of “settled claim” as provided by

the legislature in § 39-71-107(7)(a), MCA (2005). Flynn/Miller’s argument against the

WCC’s adoption of this statutory definition of “settled claim” is unpersuasive. Although

the definition includes the phrase “for purposes of this section,” it is found within the part

containing the generally applicable provisions of the Workers’ Compensation Act (the

Act), including the list of many definitions applied in the Act. See § 39-71-116, MCA

(2005). Further, § 39-71-107, MCA, in which the definition of “settled claim” is located,

includes provisions which are necessarily applicable to all settled claims. Considering

this statutory structure, including the absence of any other statutory definition of the term,

we cannot conclude that an “intention plainly appears” to prohibit other uses of this

definition within the Act. Section 1-2-107, MCA. Rather, using the definition provided

by the legislature furthers the expression of legislative will absent a contrary indication

and further provides consistency between the retroactivity of judicial decisions

established by our cases and the application of the Act.

¶26    The Flynn Order offers no rationale for the distinction between the definition

adopted in its rationale and the one stated at the end of its order. Given the WCC’s

thorough analysis and expressly stated intent to adopt the legislature’s definition of

“settled claim,” we can imagine no reason other than scrivener’s error for the

inconsistency. Accordingly, we reverse the Flynn Order to the extent that the definition

of “settled claim” at the end of its order holding varies from the statutory definition as

stated and adopted by the WCC in its analysis of that issue. To clarify, a “settled” claim

                                          10
is “a department-approved or court-ordered compromise of benefits between a claimant

and an insurer or a claim that was paid in full.” Section 39-71-107(7)(a), MCA (2005).

¶27 3. Did the WCC err when it concluded that the terms “closed” and “inactive”
were not included in our Schmill II directive?

¶28    State Fund next asserts that the WCC erred by not excluding “closed” and

“inactive” claims from the retroactivity of Flynn. State Fund contends that in Schmill II

this Court “minimized the potential effect of retroactivity based on [the] understanding

that many claims would be ‘settled, closed or inactive[.]’”          Therefore, based on

Schmill II, State Fund argues that the WCC should have defined “closed” and “inactive”

claims and held that they are also exempt from the retroactivity of judicial decisions.

State Fund asks us to “either give effect to the terms ‘closed’ and ‘inactive,’ create

definitions of ‘settled’ and ‘final’ that encompass such claims, or revisit the substantial

inequity concerns . . .”

¶29    Flynn/Miller argues that the WCC appropriately refused to define the terms

“closed” and “inactive.” They assert that the WCC correctly decided that these terms are

often defined by insurers and that “[g]iving force to an insurer’s internal policies or

unilateral decision that a claim is ‘inactive’ and should be ‘closed’ invites untold

mischief.” Ultimately, Flynn/Miller contends that the insurers are “dissatisfied” and that

“no ‘fine tuning’ will satisfy” them.

¶30    In its Flynn Order, the WCC considered whether to define the terms “closed” and

“inactive.”   The WCC concluded that the mandate from Schmill II was for i t to

“determine which claims, in the context of workers’ compensation law, would be
                                        11
considered ‘final’ or ‘settled.’” This conclusion by the WCC was correct. In Schmill II,

we specifically directed the WCC to define the terms “final” and “settled.” Schmill II,

¶ 19. While we referenced “closed” and “inactive” claims, our directive did not include

those terms. Schmill II, ¶ 19. Accordingly, we affirm the WCC’s decision. Retroactivity

for workers’ compensation claims is dependent upon whether a claim is “final” or

“settled.”

¶31 4. Did the WCC err by refusing to impose a two-year limit on the
retroactivity of judicial decisions for workers’ compensation claims?

¶32    State Fund’s final argument is that the WCC erred by refusing to adopt the two-

year statute of limitations from § 39-71-2905, MCA (2005), as a limit on the retroactive

effect of judicial decisions in workers’ compensation claims. That statute provides that

“[a] petition for hearing before the workers’ compensation judge must be filed within 2

years after benefits are denied.” Section 39-71-2905(2), MCA. State Fund contends that

there is a “strong public policy . . . against applying judicial decisions retroactively to all

workers’ compensation claims.” State Fund reasons that while § 39-71-2905, MCA

(2005), “explicitly applies only to claims where benefits have been denied, . . . the

existence of this statute indicates the legislature viewed two years as the maximum

reasonable period for a workers’ compensation claimant to sit on his or her rights without

attempting to vindicate them.”       Accordingly, State Fund argues by analogy that a

claimant who has accepted a benefit determination should not “enjoy the full retroactive

effect of a newly-issued judicial decision” if that decision occurs two years after the

benefit was determined. Flynn/Miller responds that a “creation of statutes of limitation is
                                          12
exclusively within the province of the legislature, as constrained by the constitution” and

is therefore not “the Court’s job.”

¶33    While we recognize the advantage of finality and the ease of administration that an

adoption of a two-year limitation on retroactivity would serve, we refuse to adopt such a

limit by analogizing to a statute which the legislature has made applicable only to

particular cases. As State Fund concedes, “there is no specific statutory cutoff point for

most workers’ compensation claims.” Accordingly, application of the two year statute of

limitation here would require this Court to take liberty with § 39-71-2905, MCA (2005),

by extending it beyond the legislature’s clearly intended purpose, as evident by its plain

language. As we stated in Dempsey, the interests of fairness and finality are not generally

served by drawing “an arbitrary distinction between litigants based merely on the timing

of their claims.” Dempsey, ¶ 28. Therefore, we conclude that the WCC correctly refused

to impose the two-year statute of limitations set forth in § 39-71-2905, MCA (2005).

¶34    Affirmed in part and reversed in part.



                                                 /S/ JIM RICE

We concur:

/S/ KARLA M. GRAY
/S/ JOHN WARNER
/S/ W. WILLIAM LEAPHART
/S/ BRIAN MORRIS

/S/ JULIE MACEK
Hon. Julie Macek, District Judge,
sitting for Justice Patricia O. Cotter
                                         13
/S/ GREGORY R. TODD
Hon. Gregory R. Todd, District Judge,
sitting for Justice James C. Nelson




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