Settlement Which Did Not Comply with R.C. 4123.65(A) Invalid

Settlement Which Did Not Comply with R.C. 4123.65(A) Invalid

Posted: May, 2008

State, ex rel. Wise v. Ryan (4/16/08), 118 Ohio St.3d 68, 2008-Ohio-1740.

Issue: Must the Commission vacate a settlement agreement which did not comply with the requirements of R.C. 4123.65(A) that it set forth a justification of the settlement?

Background: Wise suffered a leg injury. He had surgery as a result of the injury in 1995. A year after the surgery, his doctor reported

[a]s far as long term, I think that his left knee will not be normal. He is going to have a slight amount of valgus instability in the left knee . . . as well as more than likely an earlier onset of arthritis secondary to the trauma.

In 1997, the employer’s third party administrator (TPA) sent Wise a letter suggesting that a settlement for $2,000 “may be in your best interest.” Wise, who was unrepresented, reads at a fourth-grade level, and has an IQ of 72, signed the settlement form provided by the TPA. The TPA provided Wise with the standard settlement form used by the BWC. However, the portion of the form which instructed the parties to “clearly set forth the circumstances by reason of which the proposed settlement is deemed desirable” as required by R.C. 4123.65(A) was left blank.

Five years after the BWC approved the settlement Wise, through newly-retained counsel, filed a motion to vacate the settlement based on Wise’s lack of representation and competency when he signed the settlement agreement.

Even though Wise presented evidence from Dr. L indicating that he was not capable of understanding the consequences and ramifications of his signature to the Settlement Agreement, the Commission refused to set aside the settlement agreement. By a 2-1 vote, the Industrial Commission found that “the injured worker failed to provide sufficient evidence that the settlement agreement was ‘clearly unfair’ or a ‘gross miscarriage of justice’.”

One member of the Commission dissented, stating:

The claimant in the instant case is mentally retarded and went through school in the special education program. The claimant has a fourth grade comprehension level, but the settlement agreement at issue is obviously written in legal wording that is well beyond that which could be read and understood by a fourth-grader. Therefore, for the minor sum of $2,000, the claimant assigned away his rights to his workers’ compensation claim despite the fact that the claimant has already received $14,000 in medical treatment and $3,500 in compensation in this claim and despite the fact that the medical evidence shows that the claimant will likely suffer lifelong medical problems due to the serious injuries he sustained on account of this industrial accident. The claimant was unrepresented at the time he signed the settlement agreement and the undisputed testimony and medical evidence produced at hearing shows that the claimant lacked the intellectual capacity to read, let alone understand, the settlement agreement he signed.

Wise filed a mandamus action to challenge the Commission’s refusal to vacate the settlement. The Court of Appeals recognized that the settlement agreement did not comply with the R.C. 4123.65(A) requirement that a settlement agreement “clearly set forth the circumstances by reason of which the proposed settlement is deemed desirable.” However, the Court denied the requested writ of mandamus because it found that the Commission’s review of the settlement agreement as required by R.C. 4123.65(D) made the failure of the agreement to comply with R.C. 4123.65(A) irrelevant. Wise appealed.

Decision: Supreme Court reverses.

The Court finds that the failure of the settlement agreement to comply with R.C. 4123.65(A) renders it legally invalid. The Court has previously indicated that the requirements of R.C. 4123.65 are mandatory. In this case, the failure to comply with R.C. 4123.65(A), which requires an explanation of why the settlement is desired, renders the settlement agreement invalid.

The Court states that the failure to comply with R.C. 4123.65(A) is not excused by the R.C. 4123.65(D) review of the settlement agreement because

[i]t is indeed impossible for a hearing officer to evaluate whether settlement is just when there is no reasoning provided that justifies settlement.

Editor’s Comment: The Court does not consider the issue of Wise’s competency, or the effect that a lack of competency would have on the settlement agreement, because of its finding regarding the mandatory nature of R.C. 4123.65(A).

Given the facts set forth by the dissenting member of the Industrial Commission, it seems troubling that the Commission would deem Wise competent to agree to a settlement.

It is also troubling that such a settlement was approved in the first place. This case demonstrates the problems with settlements, and rubber-stamp approval of settlements. How could anyone realistically review the facts of this case and view $2,000 as a fair settlement given the medical evidence and nature of his condition?

In response to the Supreme Court’s decision, the BWC has made changes to its settlement procedure.

After Wise was decided, the BWC withdrew from all settlements which had not been finalized where the required language was not included. The BWC will no longer process settlements without the R.C. 4123.65(A) language. The additional language can be filed on a form C-241.

When a settlement agreement does not have the required language, the BWC will send a letter requesting it. A sample of letter which the BWC willl send if the required language is not included states:

Pursuant to the Ohio Supreme Court’s decision in State ex rel. Wise v. Ryan (2008), 2008-Ohio-1740, you must clearly state the reasons why you believe the settlement is desirable in your claim(s). The settlement application that you submitted to BWC has a section that requested such information.

However, you have not completed the portion of the settlement application requiring this information. Enclosed is an Amended Settlement Agreement and Release (C-241) on which you or your representative can provide the reason(s) for the settlement under “Other.” Please complete and return this document to me as soon as possible so BWC can complete the processing of your settlement application.

Thank you in advance for your cooperation.

On May 5, 2008, the Commission adopted a new section of the Hearing Officer Manual, Memo 03, setting for the standards for hearing officers to follow in reviewing settlements.

Information courtesy of the Ohio Workers’ Compensation Bulletin. Subscribe to the Ohio Workers’ Compensation Bulletin to keep informed about the Ohio workers’ compensation system.