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Lagler v. Menard, Inc.

Supreme Court of South Dakota

July 3, 2018

TAMMY LAGLER, Claimant and Appellee,
v.
MENARD, INCORPORATED and ZURICH AMERICAN INSURANCE CO., Defendants and Appellants.

          CONSIDERED ON BRIEFS ON FEBRUARY 12, 2018

          APPEAL FROM THE CIRCUIT COURT OF THE SIXTH JUDICIAL CIRCUIT HUGHES COUNTY, SOUTH DAKOTA THE HONORABLE MARK BARNETT Judge

          SCOTT N. HEIDEPRIEM KASEY L. OLIVIER of Heidepriem, Purtell & Siegel LLP Sioux Falls, South Dakota Attorneys for claimant and appellee.

          J.G. SHULTZ of Woods, Fuller, Shultz & Smith, P.C. Sioux Falls, South Dakota Attorneys for defendants and appellants.

          GILBERTSON, Chief Justice

         [¶1.] Tammy Lagler suffered a workplace injury while employed by Menard Inc. The South Dakota Department of Labor and Regulation awarded Lagler lump-sum, permanent-total-disability compensation but denied her request for attorney's fees. On appeal, the circuit court affirmed the Department's decision to award compensation but reversed the decision to award it as a lump sum. The court also reversed the Department's denial of attorney's fees. The parties each appeal various aspects of the court's decision. We affirm.

         Facts and Procedural History

         [¶2.] On April 21, 2007, then-47-year-old Lagler injured her right ankle while working in the garden center of the Sioux Falls Menards.[1] While stepping off a raised platform, Lagler lost her balance and landed on her right foot. She heard a "pop" and felt a sharp pain on the inside of her right heel that extended up the back of her leg to the inside of her knee. Lagler also suffered minor injuries to her knee and elbow. Her ankle immediately swelled and was painful. Hours later, Lagler sought medical care. A physician's assistant (P.A.), Rodney Ridenour, examined Lagler's ankle and after ordering imaging, determined that the ankle was sprained and not fractured. Several days later, Lagler was examined by Dr. Ronald Rossing, who also diagnosed Lagler's injury as a sprain. Dr. Rossing fit Lagler with a cast shoe and advised several work restrictions: wear the cast shoe, limit stair climbing, no lifting over 25 pounds, and no walking for longer than 45 minutes at a time.

         [¶3.] Lagler continued to work at Menards. For its part, Menards accommodated Lagler's work restrictions. But Lagler continued to experience pain, and on June 6, 2007, she consulted Dr. William Bell, a board-certified orthopedic surgeon. Dr. Bell fit Lagler with a controlled-ankle-motion (CAM) boot and requested approval for a bone scan, which was approved by Menard's insurer, Zurich American Insurance Co. On July 2, Dr. Bell reviewed the bone scan, diagnosed Lagler with compression fractures in her right foot, and determined she should continue wearing the CAM boot for another four weeks. By August 1, Lagler was still experiencing significant pain even though new imaging showed "solid union of her fractures." Dr. Bell suspected the straps of the CAM boot were responsible for Lagler's continuing pain. Although Dr. Bell concluded Lagler could safely transition out of wearing the boot, she continued to wear it.

         [¶4.] Lagler's condition did not improve, but physical examination revealed no objective reason for her pain. On September 5, 2007, writing in Lagler's medical records, Dr. Bell noted: "[Lagler] is in for follow-up on her foot pain. She's really not doing any better. She's still complaining of a tremendous amount of kind of ankle, hind foot, mid foot pain." On September 24, after receiving Zurich's approval, Dr. Bell ordered magnetic resonance imaging (MRI) of Lagler's right ankle and foot. Based on the MRI, Dr. Bell determined that there were no abnormalities and that Lagler's ligaments and tendons were "intact without significant degenerative change." Unable to identify a cause of Lagler's continuing pain, Dr. Bell referred Lagler to another physician, with Zurich's approval.

         [¶5.] Lagler began seeing Dr. David Watts, another board-certified orthopedic surgeon. On October 2, 2007, Lagler reported pain along her right instep. Dr. Watts injected lidocaine, a local anesthetic, into Lagler's posterior tibialis tendon, and she experienced nearly total relief. But when Dr. Watts asked Lagler to perform a single heel raise, she was not able to do so. Dr. Watts diagnosed Lagler with posterior tibialis tendinitis and concluded it was related to work. After conservative treatments were unsuccessful, Dr. Watts performed surgery on Lagler to repair the tendon. During surgery, Dr. Watts discovered that Lagler's tendon was frayed. Dr. Watts concluded that because Lagler had continuous pain in the same area since the April 2007 accident, her tendinitis and subsequent surgery resulted from a work-related injury.

         [¶6.] Following surgery, Lagler was fitted with a progressive-weight-bearing CAM boot for rehabilitation. But on April 30, 2008, only three months after surgery, Lagler reported to P.A. Angela Majeres, who worked with Dr. Watts, that she had a resurgence of pain and new tenderness along her Achilles tendon. On June 2, Lagler returned to Dr. Watts and reported that while she no longer had pain in her posterior tibialis tendon, she was experiencing new pain along her Achilles tendon. Dr. Watts diagnosed her with Achilles tendinitis. He restricted her to sedentary work only.

         [¶7.] Lagler continued to experience worsening and new pain. On July 30, 2008, Dr. Watts diagnosed Lagler with "Achilles tendinitis with retrocalcaneal bursitis." Retrocalcaneal bursitis is an inflammation of the bursa, which is a fluid-filled sac located between the tendon and bone. Dr. Watts opined that the immediate cause of the inflammation was a congenital deformity in Lagler's foot known as "Haglund's deformity," which is a condition where the back of the heel pokes into the soft tissue near the Achilles tendon. In Dr. Watts's opinion, wearing a CAM boot after the April 2007 injury caused Lagler to change her gait, which in turn caused her congenital condition to become symptomatic. Thus, Dr. Watts concluded that Lagler's pain ultimately stemmed from her work-related injury. On August 6, 2008, Dr. Watts sought approval from Zurich to perform a second surgery on Lagler.

         [¶8.] Zurich assigned claims specialist Mary Lemieux to Lagler's case.[2] Lemieux's notes indicate she contacted Dr. Watts's office on August 6, 2008, to request information on the proposed procedure. Viewing the delay as a refusal to cover the second surgery, Lagler filed a petition for a hearing with the Department on August 28. Lemieux's notes during this time indicate she made several attempts to obtain information from Dr. Watts's office. On September 15, records indicate a 5.8-minute-long telephone call occurred between Lemieux and one of more than fifty extensions at Dr. Watts's office. Lemieux's notes describe the September 15 call: "Angie Roberts, Dr. Watts' nurse, called me. We discussed the etiology of this. Can be due to heels, i.e., pump bump but really it's more of an idiopathic condition. Not related to ankle injury. Is she then disabled due to the Haglund's? Yes, not due to the original injury." Testimony would later establish, however, that not only was this conversation not noted in Lagler's records, nobody in Dr. Watts's office is named "Angie Roberts." On September 17, without completing either an independent medical examination or an independent examination of Lagler's medical records, Zurich sent a fax to Dr. Watts's office that officially denied payment for Lagler's second surgery. And on September 22, Zurich stopped all disability payments to Lagler.

         [¶9.] On October 27, 2008, Lagler was examined by another orthopedic surgeon, Dr. Eric Watson. Dr. Watson agreed with Dr. Watts's diagnosis regarding Haglund's deformity and retrocalcaneal bursitis. Dr. Watson also concluded that the surgery proposed by Dr. Watts would relieve Lagler's pain, but Dr. Watson did not express an opinion as to whether Lagler's April 2007 injury caused her current symptoms. Believing that Lagler was running out of nonsurgical options, Dr. Watson recommended Lagler undergo a second surgery to correct her Haglund's deformity and to remove the inflamed bursa.

         [¶10.] After first denying coverage for a second surgery and terminating compensation, Zurich then engaged Dr. Richard Farnham to conduct an independent examination of Lagler's medical records.[3] Dr. Farnham did not physically examine Lagler; instead, he reviewed the treatment records of P.A. Ridenour and Drs. Rossing, Bell, Watts, and Watson. Dr. Farnham concluded that Lagler's April 2007 injury did not cause either her posterior tibialis tendinitis or her Haglund's deformity. He also concluded that not even Lagler's first ankle surgery was causally related to the April 2007 injury.

         [¶11.] On February 11, 2009, Lagler accepted Dr. Watson's recommendation, and Dr. Watson performed the surgery on February 19. Following her second surgery, Lagler initially reported that her condition was improving. But by the end of April 2009, she complained of swelling in her foot. Dr. Watson directed Lagler to engage in only sedentary work until July 15 and to work no more than 35 hours per week as tolerable. Eventually, Lagler could not tolerate even 35 hours per week, so on June 11, 2010, Dr. Watson changed the restriction to a maximum of 30 hours per week. Dr. Watson also referred Lagler to Dr. Jerry Blow, another board-certified physician. Dr. Blow evaluated Lagler on August 19 and reviewed her medical records and Dr. Watts's deposition. Dr. Blow agreed with Dr. Watts that Lagler's April 2007 injury was responsible for her posterior tibialis tendinitis and retrocalcaneal bursitis.

         [¶12.] The financial and emotional impact of the foregoing on Lagler was severe. While she continued to work throughout 2007, she had no income between September 2008 and April 2009. And after returning to work, her physical limitations reduced the number of hours she could work in a week and, therefore, her income. Lagler did not have medical insurance, so when Zurich denied coverage for the second surgery, she had to borrow money from family members and cash in part of her retirement to make the down payment for the surgery. Zurich's termination of all workers'-compensation payments further reduced her ability to meet her financial obligations. In February 2011, Lagler's mortgagee foreclosed on her home. Lagler's daughter offered her a home in Winner, South Dakota, and Lagler accepted because of both her need for a home and the emotional support her daughter could provide. Lagler terminated her employment with Menards on April 11, 2011. After moving to Winner, Lagler begin seeing Dr. Teresa Marts, who changed Lagler's work restrictions to sedentary only.

         [¶13.] Lagler's workers'-compensation claim came before the Department for the first time on May 10, 2011. The parties agreed to bifurcate the proceedings. At the May 10 hearing, the Department considered whether Lagler's April 2007 injury was a major contributing cause of her need for two ankle surgeries. The Department issued a decision favorable to Lagler on September 9, 2011, concluding that both surgeries were compensable. The Department entered factual findings and legal conclusions on October 24. On February 3, 2012, the Department issued an order awarding Lagler $22, 096 in unpaid medical bills and prejudgment interest.

         [¶14.] On September 20, 2012, the Department held a second hearing. At the second hearing, the Department considered whether Lagler was entitled to permanent-total-disability (PTD) compensation. The Department issued a decision favorable to Lagler on January 11, 2013. The Department admitted evidence that the Social Security Administration found Lagler to be "disabled as of April 10, 2011." The Department also found that Lagler did not purposefully leave the Sioux Falls job market and that given her physical impairment, age, training, and experience, she would not be able to find suitable, regular employment in Winner. Also finding that Lagler is not a candidate for retraining, the Department concluded she is permanently and totally disabled under the odd-lot doctrine.[4] The Department entered factual findings and legal conclusions on February 11, 2013.

         [¶15.] On December 2, 2014, the Department held a third hearing. This hearing addressed the questions whether Lagler was entitled to a lump-sum award and attorney's fees. At the hearing, P.A. Majeres-the only person named "Angie" in Dr. Watts's office who was also involved in Lagler's care-testified but denied even knowing who Lemieux was, let alone having told her that Lagler's condition was unrelated to the April 2007 injury. Lemieux did not testify at the hearing. Even so, finding that Lemieux exercised "some diligence," the Department concluded that although Zurich's decision to deny further compensation was incorrect, it was not vexatious or without reasonable cause. The Department issued a decision on April 29, 2015, granting Lagler's request for a lump-sum award but denying her request for attorney's fees. The Department issued factual findings and legal conclusions reflecting its decision on June 4. And on June 29, the Department entered a final order, incorporating the June 4 factual findings and legal conclusions. The Department awarded Lagler $526, 768 in total.[5]

         [¶16.] On July 13, 2015, Menard and Zurich filed a notice of appeal to the circuit court. They appealed the following: (1) the Department's October 24, 2011 factual findings and legal conclusions; (2) the Department's February 3, 2012 order; (3)the Department's February 11, 2013 factual findings and legal conclusions; (4)the Department's June 4, 2015 factual findings and legal conclusions; and (5) the Department's June 29, 2015 order. In a statement of issues filed the same day, Menard and Zurich challenged both the award of compensation and the decision to award it as a lump sum. Lagler did not file a notice of review, but on July 15, she did file a statement of issues that challenged the Department's denial of her request for attorney's fees.

         [¶17.] The circuit court heard the appeal on December 21, 2015. On February 17, 2016, the court issued a decision affirming the Department's decision regarding causation and Lagler's entitlement to compensation. However, the court reversed the Department's decision to award compensation as a lump sum. The court also reversed the Department's denial of attorney's fees. The court remanded the case back to the Department with instructions to recalculate the prejudgment interest due and to award Lagler reasonable attorney's fees under SDCL 58-12-3.

         [¶18.] On remand, additional problems arose on both issues. The parties reached an agreement regarding the amount of prejudgment interest due. Despite the parties' agreement, the Department deviated from the stipulated amount of $171, 919 and instead awarded $156, 691. And in the circuit court's decision, the court noted that Lagler "produced evidence of reasonableness of her attorney's fees[, ]" which totaled $103, 632. The court ordered those fees be reimbursed under SDCL 58-12-3, but on remand, the Department instead awarded attorney's fees under SDCL 62-7-36 in the amount of "30% of disputed amounts ($66, 327.32) plus costs and sales tax." The Department issued a final order on June 6, 2016.

         [¶19.] On June 17, 2016, Lagler filed a notice of appeal to the circuit court.[6] She appealed the following: (1) the Department's April 29, 2015 decision; (2) the Department's June 4, 2015 factual findings, legal conclusions, and order; (3) the Department's June 29, 2015 order; and (4) the Department's June 6, 2016 order. In a statement of issues filed on June 21, 2016, Lagler challenged the Department's calculation of prejudgment interest and attorney's fees. And although the court had already rejected Lagler's request for a lump-sum award in the first appeal, Lagler challenged the Department's denial of her request for a lump-sum award. Finally, Lagler requested taxation of disbursements in the amount of $7, 443. Menard and Zurich filed a notice of review and statement of issues on July 6 addressing the issue of attorney's fees. For the first time in the history of this workers'-compensation case, Menard and Zurich argued that because Lagler failed to file a notice of review in the first appeal regarding the Department's initial denial of her request for attorney's fees, neither the Department nor the circuit court had jurisdiction over that matter after the Department's initial decision.

         [¶20.] The circuit court considered the second appeal on October 4, 2016. The court rejected Menard and Zurich's jurisdictional argument and reaffirmed its February 17, 2016 decision. The court affirmed the Department's denial of Lagler's request for a lump-sum award. The court reversed the Department's calculation of prejudgment interest and attorney's fees. The court also denied Lagler's request for taxable disbursements. Instead of remanding, the court ordered Menard and Zurich to pay Lagler the amount stipulated by the parties in regard to prejudgment interest. The court also instructed the parties that it would resolve the attorney's-fees issue either by agreement of the parties or after further proceedings. On January 20, 2017, Lagler submitted a motion to the circuit court that requested attorney's fees. After a hearing on March 20, the court issued an order on April 4 that awarded Lagler $144, 824 in attorney's fees.[7]

         [¶21.] Now before this Court, Menard and Zurich appeal the circuit court's April 4, 2017 order. By notice of review, Lagler appeals the court's February 17, 2016 decision, its January 11, 2017 decision, and its April 4, 2017 order. The parties raise the following issues:

1. Whether the circuit court erred by affirming the Department's decision to award Lagler permanent-total-disability compensation.
2. Whether the circuit court erred by reversing the Department's decision to deny Lagler's request for attorney's fees.
3. Whether the circuit court erred by reversing the Department's decision to award compensation to Lagler in a lump sum.
4. Whether the circuit court erred by declining to tax additional expenditures of Lagler's.

         Standard of Review

         [¶22.] The central issue in this appeal is the adjudication of Lagler's right to workers' compensation, which occurred in a formal setting. Therefore, this appeal is governed by South Dakota's Administrative Procedures Act, SDCL chapter 1-26. Questions of law are reviewed de novo. Dakota Trailer Mfg., Inc. v. United Fire & Cas. Co., 2015 S.D. 55, ¶ 11, 866 N.W.2d 545, 548. Matters of reviewable discretion are reviewed for abuse. SDCL 1-26-36(6). The agency's factual findings are reviewed under the clearly erroneous standard. SDCL 1-26-36(5). The agency's decision may be affirmed or remanded but cannot be reversed or modified absent a showing of prejudice. SDCL 1-26-36. The same rules apply on appeal to this Court. See Dakota Trailer Mfg., 2015 S.D. 55, ¶ 11, 866 N.W.2d at 548.

         Analysis and Decision

         [¶23.] 1. Whether the circuit court erred by affirming the Department's decision to award Lagler permanent-total-disability compensation.

         [¶24.] Menard and Zurich first argue Lagler is not entitled to PTD compensation. They contend that Lagler failed to establish a causal connection between her April 2007 injury and the need for her second ankle surgery. They also contend that Lagler purposefully left the Sioux Falls job market and that consequently, PTD compensation is ...


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