Steinmetz v. STATE, DOC STAR ACADEMY

#24680-a-RIEPEL, Circuit Judge
2008 SD 87

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

* * * *

LEWIS F. STEINMETZ, Appellant,

v.

STATE OF SOUTH DAKOTA, DOC
STAR ACADEMY,

and

STATE OF SOUTH DAKOTA,
BUREAU OF PERSONNEL, Appellees.

* * * *

APPEAL FROM THE CIRCUIT COURT
OF THE SIXTH JUDICIAL CIRCUIT
HUGHES COUNTY, SOUTH DAKOTA

* * * *

HONORABLE JAMES W. ANDERSON
Judge

* * * *

Wm. JASON GROVES of
Groves Law Office
Rapid City, South Dakota Attorney for appellant.

TIMOTHY ENGEL of
May, Adam, Gerdes & Thompson, LLP
Pierre, South Dakota Attorneys for appellees.

* * * *

ARGUED
APRIL 24, 2008

OPINION FILED 9/3/08
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RIEPEL, Circuit Judge

[¶1.] Lewis Steinmetz (Steinmetz) appeals an order of the circuit court

affirming the decision of the South Dakota Department of Labor, Division of Labor

and Management (Department) refusing to award workers' compensation benefits

on a lump sum basis and rejecting his proposed method of calculating the present

value of his benefits. We affirm.

FACTS AND PROCEDURE

[¶2.] Steinmetz was injured while employed by the South Dakota

Department of Corrections (Employer). Steinmetz filed a petition for permanent

total disability benefits and requested a lump sum award pursuant to SDCL 62-7-6.

Steinmetz and Employer entered into a stipulation in which Employer admitted

that Steinmetz was permanently and totally disabled pursuant to SDCL 62-4-7 as a

result of his work-related injury. Employer also agreed that Steinmetz was entitled

to the payment of his attorney's fees and costs in a lump sum. The stipulation

provided that Steinmetz's right to request a lump sum pursuant to SDCL 62-7-6

was not impaired by the stipulation.

[¶3.] Pursuant to ARSD 47:03:01:07, the Department calculated the present

value of Steinmetz's future benefits as $269,897.91. Steinmetz employed the

services of Dr. Ralph Brown (Dr. Brown) and Donald Frankenfeld (Frankenfeld) to

opine as to the present value of his future workers' compensation benefits. Both Dr.

Brown and Frankenfeld calculated the equivalent lump sum amount in an amount

significantly in excess of the Department's calculation. 1

1. Dr. Brown calculated the present value as $364,120.21. Frankenfeld
calculated the present value as $359,880.
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[¶4.] The parties agreed to submit the case to the Department on stipulated

facts. Steinmetz proffered Dr. Brown's and Frankenfeld's calculations along with a

report from Don Herrmann (Herrmann) proposing structured settlement

investments for Steinmetz's life, 10 years certain plus life, and 20 years certain plus

life. The parties also stipulated to the admission of a report which concluded that if

Steinmetz was awarded a lump sum in the amounts calculated by Dr. Brown or

Frankenfeld, and if that lump sum, after payment of attorney's fees and costs, was

invested as proposed by Herrmann, there would be no offset of Social Security

Disability benefits.

[¶5.] The Department denied Steinmetz's motion for a lump sum award of

workers' compensation benefits and rejected Steinmetz's method of calculating the

present value of his benefits. The Department concluded that the method of

calculation set forth in ARSD 47:03:01:07 was valid. Steinmetz appealed to the

circuit court. The circuit court affirmed the Department's decision. Steinmetz

appeals.

STANDARD OF REVIEW

[¶6.] This case presents questions of fact, questions of law, and mixed

questions of law and fact. "Questions of fact are subject to clearly erroneous

review." Enger v. FMC, 2000 SD 48, ¶6, 609 NW2d 132, 134. "A decision is clearly

erroneous if, after reviewing the entire record, the reviewing court is left with a

definite and firm conviction that a mistake has been made." Id. (citing Sopko v. C &

R Transfer Co., Inc., 1998 SD 8, ¶6, 575 NW2d 225, 228). "Questions of law and

mixed questions of law and fact, on the other hand, are subject to different

standards." Id. ¶7, 609 NW2d at 134. "Questions of law are subject to de novo
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review; no deference is given to an agency's conclusions of law." Id. (citing Thomas

v. Custer State Hospital, 511 NW2d 576, 579 (SD 1994)). "When the issue involves

a question of mixed law and fact requiring the application of a legal standard, the

Court will treat the issue as a question of law subject to de novo review." Id. (citing

Permann v. Dep't of Labor, 411 NW2d 113, 119 (SD 1987)). The determination of

whether a lump sum award of benefits should be granted under SDCL 62-7-6 is a

mixed question of law and fact and is freely reviewable on appeal. Id. ¶10, 609

NW2d at 134.

ANALYSIS

ISSUE ONE

[¶7.] Whether the Department erred in denying Steinmetz's request
for a total lump sum payment of benefits.

[¶8.] "The allowance of a lump-sum award is the exception and not the

general rule." Id. ¶11, 609 NW2d at 135 (quoting Wulff v. Swanson, 69 SD 539,

543, 12 NW2d 553, 555 (1944)). The rationale behind this policy has been explained

in prior cases:

Since compensation is a segment of a total income
insurance system, it ordinarily does its share of the job
only if it can be depended on to supply periodic income
benefits replacing a portion of lost earnings. If a . . .
totally disabled worker gives up these reliable periodic
payments in exchange for a large sum of cash
immediately in hand, experience has shown that in many
cases the lump sum is soon dissipated and the workman
is right back where he would have been if workmen's
compensation had never existed.

Id. ¶11, 609 NW2d 135 (quoting 8 Larson's Workers' Compensation Law, §82.71

(1999)).

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[¶9.] "The beginning point of any consideration of the justifiability of lump-

summing in a particular case is the standard set by the statute." 8 Larson's

Workers' Compensation Law, §132.07[2][a] (2007). SDCL 62-7-6 allows lump sum

awards under certain circumstances. It provides:

An employer or employee who desires to have any unpaid
compensation paid in a lump sum may petition the
Department of Labor asking that the compensation be paid
in that manner. If, upon proper notice to interested parties
and proper showing before the department, it appears in
the best interests of the employee that the compensation be
paid in lump sum, the secretary of labor may order the
commutation of the compensation to an equivalent lump-
sum amount. That amount shall equal the total sum of
the probable future payments capitalized at their present
value on the basis of interest calculated at a rate per year
set by the department with annual rests in accordance
with rules promulgated pursuant to chapter 1-26. If there
is an admission or adjudication of permanent total
disability, the secretary may order payment of all or part
of the unpaid compensation in a lump sum under the
following circumstances:

(1) If the employee has exceptional financial need
that arose as a result of reduced income due
to the injury; or
(2) If necessary to pay the attorney's fees, costs
and expenses approved by the department
under § 62-7-36.

If a partial lump sum payment is made, the amount of the
weekly benefit shall be reduced by the same percentage
that the partial lump sum bears to the total lump sum
computation. The remaining weekly benefit is subject to
the cost of living allowance provided by § 62-4-7. Any
compensation due to beneficiaries under § 62-4-12 to 62-4-
22, inclusive, may not be paid in a lump sum, except for
the remarriage lump sum provided in § 62-4-12.

SDCL 62-7-6 (emphasis added).

[¶10.] "Our statute authorizing a lump-sum payment clearly sets out the

circumstances under which such a payment can be made." Thomas, 511 NW2d at
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580. "First, it must be in the 'best interests of the employee.'" Id. "Our prior

decisions confirm that the primary emphasis must be placed on providing an

injured worker with a reliable stream of income to replace lost wages and benefits."

Id. See also Caldwell v. John Morrell & Co., 489 NW2d 353 (SD 1992); Wulff, 69 SD

539, 12 NW2d at 553. "Second, in the case of a worker who has been permanently

and totally disabled . . . a lump sum may be ordered if the worker has an

'exceptional financial need that arose as a result of reduced income due to the

injury.'" Thomas, 511 NW2d at 580 (quoting SDCL 62-7-6(1)). "Third, a lump sum

may be ordered, in the case of a permanent total disability, when necessary to pay

the attorney's fees, costs and expenses." Id. (citing SDCL 62-7-6(2); SDCL 62-7-36).

The Department found that Steinmetz established that a lump sum award would be

in his best interest. However, Steinmetz failed to establish that he had "exceptional

financial need that arose as a result of reduced income due to the injury."

[¶11.] Prior to 1993 the South Dakota Legislature restricted lump sum

awards to those situations in which it was in the claimant's "best interests." 2 "This

Court has identified four factors for defining these 'best interests:'

2. SDCL 62-7-6 (1992) provided:

An employer or employee who desires to have any unpaid
compensation paid in a lump sum may petition the
department of labor asking that the compensation be paid
in that manner. If, upon proper notice to interested
parties and proper showing before the department, it
appears in the best interests of the employee that the
compensation be paid in lump sum, the secretary of labor
may order the commutation of the compensation to an
equivalent lump-sum amount. That amount shall equal
the total sum of the probable future payments capitalized
at their present value on the basis of interest calculated
at a rate per year set by department rule or regulation
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1. Age, education, mental and physical condition, and
actual life expectancy.

2. Family circumstances, living arrangements, and
responsibilities to dependents.

3. Financial condition, including all sources of income,
debts and living expenses.

4. Reasonableness of plan for investing the lump sum
proceeds and ability to manage invested funds or
arrangement for management by others."

Enger, 2000 SD 48, ¶13, 609 NW2d at 135 (quoting Thomas, 511 NW2d at 580).

However, the legislature amended SDCL 62-7-6 in 1993. 1993 SD Laws ch 379, §4.

The restriction on filing a petition for a lump sum payment in "complete disability"

cases during the first six months following injury was replaced with the current

language which provides that in cases of permanent total disability a lump sum

may be ordered upon a showing by claimant of "exceptional financial need that

arose as a result of reduced income due to the injury" or to pay attorney fees. SDCL

62-7-6.

[¶12.] "'The first and most important rule of statutory construction is to

determine and give effect to the intention of the legislature.'" Nelson v. School Bd.

of Hill City School Dist. No. 51-2 of Pennington County, 459 NW2d 451, 454 (SD

1990) (quoting Watertown Independent School Dist. No. 1 v. Thyen, 83 SD 309, 314,

with annual rests. In cases where there is complete
disability, no petition for commutation to a lump-sum
basis may be entertained by the department until six
months after the date of the injury. Any compensation
due to beneficiaries under §§ 62-4-12 to 62-4-22, inclusive,
may not be paid in a lump sum, except for the remarriage
lump sum provided in § 62-4-12.

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159 NW2d 122, 125 (1968)). "'The law must be so construed as to give effect to all of

its provisions, if possible.'" Id. at 455 (quoting Beitelspacher v. Winther, 447 NW2d

347, 351 (SD 1989)). This Court must apply the language of SDCL 62-7-6 as

enacted by the legislature. By amending the statute in 1993 the legislature has

required that in cases involving permanent total disability a claimant must show

not only that a lump sum award is in the claimant's best interest, but that either

the claimant has "exceptional financial need that arose as a result of reduced

income due to the injury" or that a lump sum award is necessary to pay attorney's

fees, costs and expenses. The parties agreed to allow the payment of attorney's fees

in a lump sum so that is not in issue. While Steinmetz may have shown that a

lump sum award would be in his best interests based on his investment proposals, a

showing of "exceptional financial need" caused by his injury is required by SDCL

62-7-6 before a lump sum may be awarded. The parties agreed to submit this case

to the Department on stipulated facts. As discussed above, Steinmetz submitted his

experts' reports calculating the present value of a lump sum award, Herrmann's

proposed structured settlement investments and a report showing that there would

be no offset of Social Security Disability benefits if he were awarded a lump sum

based on his experts' calculations. In reviewing the record, Steinmetz offered no

evidence of "exceptional financial need."3 The order of the circuit court is affirmed

3. SDCL 62-7-6 requires that the injured worker show "exceptional financial
need that arose as a result of reduced income due to the injury[.]" (emphasis
added). At oral arguments, Steinmetz's counsel argued that exceptional
financial need was shown in this case by the mere fact that Steinmetz's
income is reduced following his permanent and total disability. In every case
of permanent and total disability the injured employee suffers a reduction in
income due to his or her injury. Reduced income alone is not enough to show
"exceptional financial need."
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as to this issue.

ISSUE TWO

[¶13.] Whether ARSD 47:03:01:07 produces an equivalent lump sum
amount as required by SDCL 62-7-6.

[¶14.] Steinmetz asserts that the formula used by the Department to

calculate the present value of a lump sum award does not produce an equivalent

lump sum amount as required by SDCL 62-7-6. The core of Steinmetz's argument

is that the one percent cap on cost-of-living-adjustments (COLAs) for a lump-sum

award produces an award which is not "equivalent" to that which would be received

under periodic payments, as mandated by SDCL 62-7-6. Steinmetz argues that the

Department exceeded the statutory authority granted to it by SDCL 62-7-6 when it

promulgated ARSD 47:03:01:07. 4 Alternatively, he argues that SDCL 62-7-6 is

4. ARSD 47:03:01:07 provides:

Lump sum commutation for permanent partial disability
shall equal the sum of the probable future payments
capitalized at their present value on the basis of interest
calculated at the rate of ten-year treasury notes on the
date of injury as determined by the records of the federal
reserve library, rounded to the nearest one-fourth of one
percent, using the following formula:

V1/52 - Vn/52
Pn = -----------------------------------------------------------
1 - V1/52
where

P = Present value of $1.00 a week payable for n
weeks

V = Present value of $1.00 due at the end of the
year

n = Number of weeks for which payments are to be
made
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unconstitutional because the delegation of authority contained in the statute is

unlimited or without sufficient standards.

[¶15.] Employer argues that if this Court affirms the Department's refusal to

award Steinmetz's benefits in a lump sum, it is not necessary to reach this issue.

We agree. If Steinmetz's benefits are not paid in a lump sum there is no need from

Steinmetz's perspective to determine the present value of those benefits. However,

Steinmetz's counsel asserts that the parties entered into a stipulation regarding

attorney's fees which preserved counsel's interest in the calculation of the lump sum

value. The stipulation regarding attorney fees agrees to the payment of Steinmetz's

attorney's fees, tax and costs based upon the Department's calculation of present

value under the challenged administrative rule. It provides that "[t]his payment

will not impair or limit Claimant's rights under [Claimant's Motion for Lump

Sum]." (emphasis added). The stipulation preserves Steinmetz's right to pursue a

lump sum award, but does not provide that his counsel has an interest in pursuing

the motion independent of Steinmetz. It merely states that if Steinmetz is

successful in his motion the payment made to his counsel "shall serve as a credit

Lump sum commutation for permanent total disability
shall be calculated in the same manner except that the
interest rate shall be reduced one percent as a setoff for
the cost-of-living allowance provided by SDCL 62-4-7. The
number of weeks for which payments are made shall be
determined by the life expectancy tables found in
Appendix A at the end of this chapter. The interest rate
used, exclusive of the cost-of-living allowance setoff, may
not vary more than two percent above or below the
interest rate on ten-year treasury notes on March 4, 1992,
as determined from the records of the federal reserve
library.
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should a greater lump sum value be determined." The stipulation does not give

Steinmetz's counsel a justifiable interest independent of his client.

[¶16.] Steinmetz's counsel also asserts that an injured worker's counsel has

an interest in determining the present value of his client's benefits for the purpose

of calculating attorney's fees. Counsel for Steinmetz fails to cite any authority in

support of this claim. The failure to cite authority is a violation of SDCL 15-26A-

60(6).

[¶17.] The issue of whether ARSD 47:03:01:07 produces an equivalent lump

sum amount as required by SDCL 62-7-6 is not ripe for review and this Court

declines to address it. "Ripeness involves the timing of judicial review and the

principle that '[j]udicial machinery should be conserved for problems which are real

and present or imminent, not squandered on problems which are abstract or

hypothetical or remote."' Meinders v. Weber, 2000 SD 2, ¶39, 604 NW2d 248, 263

(Boever v. South Dakota Bd. of Accountancy, 526 NW2d 747, 750 (SD 1995) (quoting

Gottschalk v. Hegg, 89 SD 89, 228 NW2d 640, 643-44 (1975))) (alterations in

original). "Courts should decide only mature controversies, eschewing advisory

opinions and conjectural questions." Id. (citing Kneip v. Herseth, 87 SD 642, 214

NW2d 93, 96 (1974)). "'Even if a court has jurisdiction to decide the

constitutionality of the law, it should decline to do so if the issue is so premature

that the court would have to speculate as to the presence of a real injury.'" Id.

(quoting Boever, 526 NW2d at 750 (citing Meadows of West Memphis v. City of West

Memphis, 800 F2d 212, 214 (8thCir 1986))).

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[¶18.] Therefore, the circuit court's order affirming the Department's decision

is affirmed as to the denial of a lump sump award and this Court does not reach

Steinmetz's claims regarding ARSD 47:03:01:07.

[¶19.] RIEPEL, Circuit Judge, for ZINTER, Justice, disqualified.

[¶20.] GILBERTSON, Chief Justice, SABERS, KONENKAMP and

MEIERHENRY, Justices, concur.

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