Rebooting California’s Workers’ Compensation Lien Process: The Story of SB 863’s Legacy Lien Activation Fee

LAUREN J. MONIZ, ESQ.

Oakland, California

A Ninth Circuit panel decision on June 29, 2015, upholds the intention of the California Legislature to reboot the California Workers’ Compensation lien process by ridding it of frivolous and fraudulent liens. At the same time, the decision put some lien claimants between a rock and a hard place.

California signed Senate Bill 863 into law in 2012 as an effort to combat an acute "lien crisis" in the state’s workers’ compensation system (up to 800,000 in the Los Angeles Office of Workers’ Compensation alone). The law helps to facilitate the settlement of meritorious liens and attempts to prevent frivolous liens that are left pending for years and that employers end up paying just to close the case. In the recent three-judge panel decision, the Ninth Circuit upheld the requirement of SB 863 that lien claimants with "pending" liens (those filed before January 1, 2013) pay a $100 activation fee by January 1, 2014, to keep legacy liens alive. The requirement of a $150 filing fee for all liens filed on or after January 1, 2013, was also upheld. At first blush the holding doesn’t seem controversial. However, the Circuit Court, based on the plaintiff’s claim, issued an injunction against the decision, and in response to the injunction the Department of Industrial Relations moved to not enforce the activation fee requirement. As a result, many lien claimants did not pay the activation fee by January 1, 2014. Those lien claimants now face a harsh reality: since the statute technically directs that the lien be "dismissed by operation of law," they might not recover. There are hundreds to thousands of questionable and possibly fraudulent liens for which no activation fee was filed, and SB 863 might make it possible to clean out these "zombie liens" and thereby reboot the California workers’ compensation lien process.