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After hearing oral arguments on Monday, and again on Thursday, federal judge George H. Wu indicated he will sign an order next week implementing his tentative ruling that the retroactive lien activation fee violates the equal protection clause of the U.S. Constitution. The scope of the preliminary injunction has yet to be decided. It may apply to just the named plaintiffs, or to all lien claimants subject to the mandatory lien activation fee. Judge Wu will further consider the scope of the injunction in the next few days, and then the actual order will issue.

Angelotti Chiropractic, Mooney and Shamsbod Chiropractic, Christina-Arana and Associates, Joyce Altman Interpreters, Scandoc Imaging and Buena Vista Medical Services filed a lawsuit last July in the United States District Court contesting the constitutionality of certain provisions of SB 863, and seeking to avoid payment of millions of dollars in lien activation fees before the end of 2013. They may be the only beneficiaries of the injunction, or the injunction may apply to lien claimants who are not a party.

The tentative ruling seemed to agree with the arguments that the retroactive lien filing fee violated the equal protection clause of the US Constitution since it discriminated against one class of smaller lien claimants and in favor of large lien claimants who are exempt from the fee. To state a claim under 42 U.S.C. § 1983 for a violation of the Equal Protection Clause of the Fourteenth Amendment a plaintiff must show that the defendants acted with an intent or purpose to discriminate ’against the plaintiff based upon membership in a protected class. Where the group excluded or discriminated against does not constitute a suspect class a plaintiff may still state a claim, but for equal protection purposes, a governmental policy that purposefully treats groups differently need only be ’rationally related to legitimate legislative goals’ to pass constitutional muster. As with suspect classes, differential treatment impinging on a fundamental right will “draw strict scrutiny” attention under the Equal Protection Clause.

The retroactive $100 lien activation fee at issue in this case specifically does not apply to any lien filed by a health care service plan licensed pursuant to [Cal. Health and Safety Code § 1349], a group disability insurer under a policy issued in this state pursuant to the provisions of [Cal. Ins. Code § 10270.5], a self-insured employee welfare benefit plan, as defined in [Cal. Ins. Code § 10121], that is issued in this state, a Taft-Hartley health and welfare fund, or a publicly funded program providing medical benefits on a nonindustrial basis.

Under the “rational basis” review of the lien activation fee, the Equal Protection Clause is satisfied if: (1) ’there is a plausible policy reason for the classification,’ (2) ’the legislative facts on which the classification is apparently based rationally may have been considered to be true by the governmental decisionmaker,’ and (3) ’the relationship of the classification to its goal is not so attenuated as to render the distinction arbitrary or irrational.

On this issue, the tentative ruling said there “is no question that the legislature has a legitimate legislative goal in its implementation of fees to the extent those fees have a purpose of funding the workers’ compensation adjudicative system and/or deterring lien filings so as to not clog the system. The question is whether a retroactive fee like the activation fee herein involved, that is designed to clear the backlog currently in the system (as well as provide funding for the system) can, while accomplishing those purposes, also discriminate amongst lienholders. If it cannot, then the case for a rational relationship to that (or those) legitimate governmental interest(s) is severely weakened.”

Defendants contended that the exempted entities are not major contributors to the backlog. However the ruling noted that “if they are not major contributors to the backlog, and if one of the purposes behind the imposition of fees is to fund the system, why any lienholder whose liens are tied up in the ‘backlog’ would be exempted is somewhat curious, especially ones who would not be greatly impacted because they are not major contributors to the backlog. The backlog is the backlog, and if clearing it is your purpose, then you attempt to clear it. It. makes little sense to clear only part of it.”

The ruling concluded that the court would “grant Plaintiffs’ motion for preliminary injunction, and discuss with the parties the appropriate scope of preliminary injunctive relief.” The scope of the injunction will be decided in the next few weeks.

So what does this mean to California employers? Essentially, they have lost a great deal of the employer’s “benefit” of SB 863, especially if the injunction will apply to all lien claimants. Lien claim resolution was a major component of the bargained for law. Additionally, a new WCIRB study noted once IMR became effective for all injuries regardless of the accident date starting on July 1, 2013, IMR requests have increased significantly. If the higher volume of August (15,731) and September (14,990) IMR requests are indicative of filing rates for subsequent months, the number of IMRs requested per year would be over three times greater than that projected in the WCIRB’s prospective cost estimate, potentially eliminating any savings in administrative costs due to IMR and also potentially negatively impacting medical treatment costs. Employers have yet to learn how litigation over the “catastrophic injury” exception to AMA Guides add-on ratings will be resolved. As a whole, the employer economics of S.B. 863 seems to be getting rapidly eroded.