By MATT CHANDLER
Buffalo Law Journal

A recent state Supreme Court ruling that found portions of New York's workers' compensation laws to be unconstitutional is far from final as both sides prepare for an appeal.

At the heart of the two-year-old dispute are 13 workers' compensation self-insured business trusts that sued the board in 2008, protesting attempts to levy more than $11 million in assessments on the groups. The assessments were largely intended to cover losses created by unrelated trusts that were underfunded, a move attorneys for the groups said was outside the scope of the workers' comp laws.

Ken Manning, a partner with Phillips Lytle LLP, served as a co-counsel on the case.

"The position of the (New York State) Workers' Compensation Board was that ‘We have had this authority for years and we have actually been exercising it, you just didn't know about it,' " he said. "The trusts' position was, ‘We had no way of knowing that you were saddling us with, basically, the liabilities and obligations of people in other trusts - people we've never met in industries we know nothing about.' Why we would ever sign up for that?"

An initial court ruling annulled the assessments, leaving the door open for them to be legal if properly executed. Phillips Lytle teamed with Belknap Webb & Tyler LLP, a New York City law firm, as co-counsel representing the 13 trusts. Despite the challenges, Manning said the issue at the core of the case never changed.

"There was a fundamental disagreement over the power and authority of the board to impose, as part of their assessment, the obligations of injured workers and employers in other trusts," Manning said. "That's where the battle line was drawn."

Manning said the ruling, issued April 14, not only was in favor of his clients, but prevents the board from further imposing any assessments on group self-insured trusts (GSITs), pending appeal.

In her 25-page ruling, Justice Kimberly O'Connor said, in part: "The court finds that assessing healthy group self-insured trusts for the workers' compensation obligations of defaulted, unrelated group self-insured trusts unconstitutionally imposes significant liability on healthy GSITs."

Though no appeal has been filed, Manning said he expects that one will be within 30 days. While he is confident that the verdict will survive the appeals process, he said there are still obstacles to overcome.

"One of the difficulties we have at this point is that we don't know much about these assessments. We've asked for data, we've asked for back-up information, and the board has declined to share it," he said. "We've twice gone to court to compel disclosure of the underlying computations, and we haven't been afforded that opportunity. We think that there has been a lack of transparency in the actions of the board, and we have expressed that in our papers."

Brian Keegan, a spokesman for the Workers' Compensation Board, confirmed that an appeal would be filed in the case, but declined to answer specific questions regarding this case and the actions of the board other than to say, "We expect to win."

Not surprisingly, Manning disagrees.

"For the judicial branch to grant a constitutional challenge, there are many rules that protect the government action, and you have to have a very compelling case to successfully challenge state government," he said. "You have to really prove that something fundamentally unfair occurred, and I think it's clear from Judge O'Connor's decision that we've met that threshold."

Jack Stiefel, a workers' comp attorney with Lewis & Lewis PC who has followed this case closely, thinks neither side should read too much into the initial court ruling.

"Look, this is only the first shot, this isn't the end of it," he said. "They can feel real good about this, but it's like the World Series, and this is one game."

Stiefel said it will be up to the courts to decide the fairest way to divide the bill for those trusts that failed.

"What are you going to do? Are you going to force the people who were insured by these people to go out of business? If they have to shoulder the whole thing, they may not make it," he said. "Eventually, somebody has got to pay, and the bottom line becomes who and how many people. The best way to do that is by spreading it over all of the people that are involved in the situation. That may not be fair, but it may come down to a question of survival."

The case is Held et al. v. State of New York Workers' Comp. Board et al., 2943-08.