One of the most important questions a defense attorney can ask at a deposition is about liens against compensation.

John P. Kamin

Liens against compensation are one of the key things workers’ compensation practitioners should be wary of when settling a case, and often, the parties can get ahead of that by asking about them at an applicant’s deposition.

By “lien against compensation,” this means that when the injured worker gets an award or a settlement, the lienholder is entitled to a part of that settlement or award. Liens against compensation can include:

• Employment Development Department.
• Child support services.
• Alimony.
• Loans to the applicant against the workers’ compensation recovery.
• Prior applicant’s attorney fee liens.
• Some group health liens.

The way one negotiates and resolves these liens varies quite differently. But one can’t resolve a lien against compensation that one is unaware of.

Sometimes asking about these types of liens at depositions gets a little awkward. I noticed an applicant with two adult children smirk when I asked her if she owes any child support or alimony, despite having confirmed that a) her kids are adults and b) that she’s been married to only two people in her life.

That being said, if I don’t ask, she could have an ancient child support lien that I am unaware of. As far as I'm concerned, my role is to sniff out these liens and determine their merits, even if it means asking a few extra questions that make me appear to be naive.

On rare occasions, I will learn about a loan that was made to the applicant. Eight or 10 years ago, there would be the occasional lien from a financial institution with a predatory interest rate. If I recall correctly, the applicant received $4,000-$5,000, but the lien was worth two to three times that due to the unusually high interest rate.

Having covered predatory lenders early in my journalism career, it’s safe to say that I'm not a fan of this practice.

On rare occasions, we find applicants’ attorneys who loaned money to applicants. If they are charging interest, then one could argue that it places a conflict of interest between the attorney and the applicant because the attorney is literally making money off the applicant, simply with the passage of time. This could be considered predatory.

Generally speaking, if the loan is near the value of the case, then even an interest-free loan could create a conflict of interest because that could influence the attorney’s approach to resolution. In that scenario, it’s plausible that there could be a settlement offer that would benefit the applicant that might not benefit the attorney, depending on the circumstances of the loan.

Fortunately, there is a deterrent to that practice that most applicants’ attorneys are all too aware of: the threat of a malpractice lawsuit. Wise applicants’ attorneys already take countermeasures to ensure their clients are on board with tentative settlement agreements, which in the long run can deter malpractice litigation. It follows that wise applicants’ attorneys are fully aware that evidence of a predatory loan against compensation could look really bad in malpractice litigation.

Not all applicants’ attorney loans to applicants are predatory. I have seen some that were simply an interest-free advance to an applicant who was related to the attorney.

This was presumably a family-friendly way to help out an applicant through a tough time, and it served its purpose. It didn’t impact settlement negotiations, either.

What to do

When a defense attorney finds a lien against compensation, it’s most important to figure out how much the lienholder wants from a tentative settlement and to negotiate a resolution on how the lien will be discharged before signing off on any settlement documents. Why is this? Because that lienholder could be legally entitled to take a chunk out of that settlement.

So contact the lienholder, discuss with the applicant’s attorney and figure out how that lien is going to be resolved with the settlement agreement. Sometimes, the applicant’s attorney may have better standing than the defense attorney to argue with the lienholder. If that’s the case, we defense attorneys can help expedite things by connecting the applicant’s attorney with the lienholder.

Quotes

Over the years, a few folks have shared their wisdom with me about liens against compensation.

One defense attorney told me the following about child support liens: “Always make sure those kids get their money.” And it’s true. It feels good to help resolve a child support lien because you are literally putting food on the table of some kids who probably need it.

A longtime applicants' attorney also had a memorable quote about EDD and would tell whoever would listen: “It’s YOUR money. It’s not EDD’s money. YOU paid for that with your payroll taxes and deductions.” He had no hesitation about negotiating EDD liens, because he felt strongly about that money (mostly) coming from the applicant. (Note: Employers also pay taxes that go to EDD.)

Conclusion

When at a deposition, ask about those liens against compensation to prevent complicated settlement proceedings later on. Ask who has loaned the applicant money, whether they are receiving checks in the mail and whether there are any outstanding child support or alimony bills. You’ll be much happier that you did.

John P. Kamin is a workers’ compensation defense attorney and partner at Bradford & Barthel’s Woodland Hills location. He is WorkCompCentral's former legal editor. This entry from Bradford & Barthel's blog appears with permission.