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Miguel Pena suffered severe industrial injuries while working for Aqua Systems on October 5, 2015, in an automobile accident involving Larry Hahn and Specialty Construction, Inc. Pena filed both an Application for Adjudication of Claim, and a civil lawsuit against Hahn and Specialty Construction.

Pena reached a third-party settlement with the insurance carriers for the third-party defendants for a payment of $997,500 to the Employee, and the workers’ compensation carrier, Great American Insurance Co., agreed to waive its subrogation recovery of in excess of $214,703, however it was stipulated that the carrier could claim credit against future workers’ compensation benefits in the amount of $474,705.79.

The matter proceeded to trial of the workers’ compensation case, and the parties stipulated that injury caused 100% permanent disability without apportionment. The start date for payment of the $907.69 per week award was agreed to be 2/3/18.

The settlement and agreement as to third party credit for $474,705.79 was received into evidence. It provided in part that “Petitioner shall be entitled to an immediate award of credit against any and all species of further and future workers’ compensation liability relating to any body parts affected by the Employee’s underlying October 5, 2015 incident, including but not exclusive to all awards of permanent disability benefits.”

Pena’s attorney, William Herreras requested a 15% attorney fee commuted off the far end of the award. He submitted a declaration that said he “was never consulted, considered, or notified of the third-party settlement in this case, netting the applicant $474,074.79.” Thus he contended that he was not bound by the stipulated agreement to immediately apply the $474,705.79 third-party credit against all unpaid benefits because he was not a party to the agreement, and, as such, he is entitled to have his fee commuted from the far end of the award.

The WCJ awarded permanent disability as stipulated, “less a fifteen percent (15%) attorney fee without commutation, with defendant entitled to a credit for amounts previously paid against the permanent disability and the attorney fees thereon.” And it then provided “upon exhaustion of all credit . . . applicant’s counsel has leave to request commutation of any remaining fee on future benefits.”

Pena’s attorney petitioned for reconsideration . A WCAB panel granted reconsideration in the panel decision of Pena v Aqua Systems ADJ10308959 (September 2022).

The panel cited case and statutory provisions that supported the rule that “Contracts such as releases purporting to exempt employers from liability for workers’ compensation benefits are prohibited and presumptively invalid unless and until the WCJ determines that they meet the requisite criteria for approval. (See also Steller v. Sears, Roebuck & Co. (2010) 189 Cal.App.4th 175, 180 (citing section 5001 for the proposition that no settlement is valid unless the WCAB approves the settlement).)”

Following this reasoning, the panel went on to say “the Stipulation to Credit purports to release applicant’s rights to future workers’ compensation benefits and is therefore presumptively invalid unless and until the WCJ inquires into its fairness and adequacy and determines that it meets the criteria for approval.”

And “inasmuch as the Stipulation to Credit does not appear to be duly executed by the proper persons, it fails to meet minimum statutory requirements for establishing the requisite fairness and adequacy for approval.

For “the entire pendency of this action defendant has been on notice that applicant was represented by an attorney because the application for adjudication identifies Herreras as applicant’s attorney.” And “it is long-settled law that an applicant’s attorney’s appearance in a matter is tantamount to the filing of a lien claim because it puts the defendant on notice that a fee will be claimed.”

“Notwithstanding that it was on notice of Herreras’s lien, defendant made no attempt to secure his agreement for the lien to be subject ‘to an immediate award of credit.’ “

“Accordingly, we will rescind the F&A and substitute findings that defendant is entitled to a third-party credit of $474,705.79 that is not applicable to the attorney’s fee.”

However “Since it is unclear whether defendant’s credit should be applied against applicant’s future medical treatment, we conclude that the record should be developed as to that issue.”